There’s been much excitement over the last few months about the prospect of some quite drastic changes to Stamp Duty that could mean a substantial reduction in tax liability for many.
It was during his run for Prime Minister that Boris Johnson first spoke about making Stamp Duty cuts for UK residents, aiming to reignite a sluggish property market.
Buying a family home is the largest purchase that most people will ever make. However, Stamp Duty rates on primary residences – which have risen from 1 per cent as recently as 1997 to as high as 12 per cent for the most expensive properties – have become so eye-watering that they are almost punishing people for moving home.
So, what can we expect when the new Chancellor of Exchequer, Rishi Sunak, announces his first budget on 11th March?
What cuts to Stamp Duty can we expect?
Early rumours about potential Stamp Duty changes centred around switching liability from the buyer to the seller, which would certainly benefit first-time buyers, but could negatively impact those at the top of the chain who wish to downsize.
No one knows how likely this policy is to be implemented because almost as soon as it was reported, the ex-Chancellor, Sajid David, blocked the suggestion by saying that a switch from buyer to seller was not on the agenda.
More likely, is the prospect of increasing the threshold at which Stamp Duty is liable from the current level of £125,000 up to £500,000. Considering the average UK property price is just over £235,000, this would knock out vast majority of buyers from the requirement to pay.
It remains to be seen as to whether he’ll stick to his guns, but during the election campaign Boris Johnson did say he’d immediately remove Stamp Duty from all house sales under £500,000, a change that will have a dramatic impact on the property market for both first-time buyers and otherwise.
There is also speculation about other types of rate-cutting scheme the Government might back. One school of thought is that Stamp Duty might be abolished on all purchases for first-time buyers so whether the property is valued at £250,000 or £ 600,000, no tax will have to be paid.
Cuts to Stamp Duty could also be made across the board so as to provide some welcome relief at the higher end of the market as well as for sub-£500k purchasers and first-time buyers.
Although it will only affect only a minority, Johnson has declared his wish to lower the rate charges for the most expensive properties (over £1.5 million) from 12% to 7%. The rationale being that a high percentage of properties fall into this bracket in London so it could reactivate the market in this area.
Rumours circulating over the last couple of weeks involving the creation of a new Mansion Tax, which would go against this plan to reduce the burden for higher value homeowners, have now been quashed.
Unrelated to Stamp Duty but mentioned in the Queen’s Speech, was another exciting proposal to stimulate the market by offering first-time buyers and key workers reductions of up to 30% on the purchase of a local new-build property. Quite how this would work is as yet unclear but we expect more to be revealed in March.
Additional Stamp Duty to be paid by foreign buyers.
If you were wondering how this reduction in tax payable by UK residents is going to be mitigated, it has been mooted that an additional surcharge will be slapped on the Stamp Duty bills of foreign-based buyers.
At the moment, non-residents pay the same Stamp Duty rate as people living in the UK. Boris Johnson has announced that they will be subject to an additional 3 per cent which means overseas buyers could have to pay up to 18 per cent in Stamp Duty.
Although a headline-grabbing policy that will appeal to the general consensus that foreign investors have been allowed to buy up prime UK real estate all too easily (in London mainly) which has been driving up prices – it might only affect a small number of transactions.
The Government, however, has argued this policy could apply to up to 70,000 sales a year and raise up to £120 million a year.
So what will happen after March?
As a nation, we are all a bit confused by the mixed messages, the smoke and mirrors and retraction of statements, but there’s no doubt that some reform to Stamp Duty is in the offing.
Although we will have to wait until the 11th March to find out the exact details, the prospect of rate cuts looks promising. Only in January, Sajid Javid said his immediate plans included ‘delivering on the Government’s promises on tax’.
One thing for sure is that the current government seems to recognise the need to do more to help first-time buyers onto the ladder and get the market moving again.
If you’re thinking about putting your property on the market this Spring, we’d be delighted to provide you with a free market appraisal.
If you want to make 2020 the year you get onto the housing ladder, we’d be delighted to give you some advice about suitable properties in your price bracket. View a selection of properties currently available (link).
For more advice about either buying or selling in the local area, call us on Wokingham 0118 977 6776 or Crowthorne 01344 779 999.