The pandemic hit various sections of society in different forms, be it business, service class or consumers at the end of the chain. The real estate sector, too, got affected initially. To provide relief to various parties stuck in the property process, the government helped by coming up with multiple provisions. One of them is the stamp duty holiday.
Globally, countries levy stamp duty or similar taxes on property purchase and sale transactions. However, during these challenging times, the UK government provided certain relaxations, which will be explained later in this blog post.
Hire Accountants
Work with a UK-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.
The major topics covered are:
- What is stamp duty?
- What is a stamp duty holiday?
- What is the current status of the holiday?
- Who gets benefitted?
- Details about Stamp Duty Land Tax
- Stamp Duty Land Tax Rates & Thresholds
- Insight into different types of properties
- Chances Of missing Stamp Duty
- SUMMING UP
To get into the details, let’s dive into the article.
What is stamp duty?
Stamp duty is a tax charged on legal instruments generally in the transfer of assets or property. They are also commonly known as stamp taxes. Apart from the property, it is also payable on the transfer of stock or marketable securities.
Stamp duty in England was introduced in the year 1694. From the year 2003, the duty was replaced with a new transfer tax, popularly known as Stamp Duty Land Tax (SDLT). In addition, for the transfer of shares & securities, Stamp Duty Reserve Tax has been introduced. Certain essential aspects of SDLT are as follows:
- It is technically paid only in England and Northern Ireland
- Scotland and Wales have their own taxes of jurisdiction. Scotland is governed by Land and Building Tax, while Wales has Land Transaction Tax.
What is a stamp duty holiday?
Stamp Duty Holiday is a relief announced by Chancellor Rishi Sunak on 8 July 2020, which has a direct connection to individuals who will be purchasing property during this pandemic.
It was brought up to help the buyers cope with the financial hit. However, the property market also needed a boost. According to the holiday, the tax stands suspended on properties up to £500,000.
In simple words, no tax is to be paid if you buy a property of £500,000, but as soon as you exceed the limit, the rates discussed in the latter part of the article come into the picture accordingly.
What is the current status of the stamp duty holiday?
The holiday is extended till 30 June 2021, which was earlier up to 31 March 2021. It will directly impact the people who were still stuck in the middle of the process. It will also add a new enthusiasm to the market players, be it buyers & sellers.
This measure has stabilised the housing market, and in fact, properties across the Island have seen strong growth.
Who gets benefitted?
Although the move has undoubtedly given a kick to the entire market, the primary beneficiary is the buyers as they stand at tax payer position.
Buyers are left with more income on their ends, leading to a situation where they could choose more expensive options, which they would have avoided otherwise.
On the contrary, homeowners could get into a practice of asking more high prices for the properties as they know no stamp duty is due. So the benefit still rests on the negotiating skills.
In monetary terms, the benefits were brought into light by the Chancellor himself, stating that the decision is going to affect buyers & businesses as mentioned below:
- On average, the Bill of duty would fall by £4,500, indicating that 9 out of 10 buyers won’t pay a single penny for the duty.
- The mortgage approvals saw a considerable rise in April after November 2020.
- The storage industry would see a significant rise as close to 32%of the customers, according to the UK Self Storage Annual Report 2020, are moving and buying new houses despite the pandemic situation.
Details about stamp duty land tax
The tax came into practice in England and Northern Ireland by the Finance Act 2003. It is a type of transfer tax that is levied on transactions related to land.
Transfer tax pertains to transactions that involve the transfer of property title from one person to another.
The taxpayers need to file a return with the HM Revenue and Customs (HMRC) within four weeks of the property transaction and pay tax within 14 days of completion, failing which a fine could be levied on them. On acceptance of the return, the HMRC issues the land ownership certificate.
General scenarios where you pay the tax are in the case of:
- Buying a freehold property
- Buying a new/existing leasehold
- Buying a property through a shared ownership arrangement
- Getting a transferred property
However; there are specific scenarios where HMRC provides relief like in case of:
- First-time Buyers
- Multiple Dwellings
- The employer buys employee’s house
- Charities
- Right To Buy Properties
- Registered Social Landlords
- Crown Employees
Stamp duty tax rates & thresholds
The most important thing to understand is that the tax applies from the point where the buyer exceeds the pre-specified thresholds. Thresholds are figures where tax rates start to apply.
If the amount is within the threshold, no tax is to be paid. The threshold details applicable are mentioned in the table below:
| Threshold Time Limits | Residential Properties | Non-Residential Properties |
| Till 1 July 2021 | £500,000 | £150,000 |
| 1 July 2021- 30 September 2021 | £250,000 | £150,000 |
The total value paid as SDLT is the price you pay for the land. In some cases, it includes various payments like goods, services, release from debt and transfer of debt.
In the case of buying a residential property, different tax rates apply to other categories; if you are a first-time buyer, the tax rates would be different from those who already own a property.
Insights into different types of properties
The government has significantly categorised different slabs for various types of properties. The major classifications are residential, non-residential, shared ownership and mixed transfers. However, the rates differ due to different periods.
While paying the tax; the main facts are:
- Timespan when you buy a property
- Amount paid for the property
Till 30 June 2021, the rates are as per the duty holiday, and from July, the threshold limits will stand revised till October 2021. From October 2021, the standard rates which were in the application before 8 July 2020 will apply.
The details about residential property rates are given applicable from 8 July 2020- 31 June 2021 in the following table:
| Property Value | SDLT Rate |
| Up to £500,000 | Zero |
| The next £425,000 (Till £925,000) | 5% |
| The next £575,000 (Till £ 1.5 million) | 10% |
| Remaining amount ( Above £ 1.5 million) | 12% |
From July 2021, the £500,000 limit would be replaced by £250,000. Later on, from October 2021; the threshold will be starting from £125,000
Non-residential & mixed property has different tax rates and slabs. The non-residential property includes:
- Commercial property
- Agricultural land used for farming
- Any property that is not suitable to be lived in
- Forests
- 6 or more properties bought in a single transaction
Mixed property consists of both residential & non-residential elements. The rates applicable are as follows:
| Property Value | SDLT Rate |
| Up till £150,000 | Zero |
| Next £100,000 | 2% |
| Remaining amount | 5% |
Chances of missing stamp duty
53,000 sales were initiated during March-April 2021.
Indicating that many people would miss the benefit of availing the duty as the property transactions generally take a time lag of 3 months from their start to completion.
Up till completion, the duty holiday would be waived. This was the primary reason why various financial analysts questioned the timing stating that the duty should be charged immediately, not after completion.
Hire Accountants
Work with a UK-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.
SUMMING UP
Various studies demand that the holiday stay permanent as its benefits will be huge for the market and the economy at large.
According to the Centre For Economics & Business Research, the house price on average would be 1.7% higher, leading to an increase in the household consumption figure adding tax revenue of £2.2 billion per year. It will also eliminate the unnecessary 37,000 transactions taking place.
However, the decision in this respect has already been taken, and now the reactions to it will definitely be observed in the coming quarter.
