Stamp duty holiday explainer
With the stamp duty holiday now extended, our guide explains how you could still benefit from the tax cut.
The Chancellor Rishi Sunak unveiled a stamp duty holiday last July in a bid to boost the housing market after the first national lockdown.
He raised the threshold at which buyers start paying stamp duty with immediate effect, from £125,000 to £500,000, in England and Northern Ireland.
It means that nearly nine out of 10 transactions are no longer subject to stamp duty, with the average bill falling by £4,500.
The stamp duty holiday was set to run until 31 March 2021. But in the Budget this week, the Chancellor moved the deadline until the end of June, giving buyers more time to take advantage of the tax break.
And to avoid a ‘cliff edge’ when this period ends, the tax-free threshold will then drop to £250,000 for a further three months until 30 September. Normal stamp duty rates will resume on 1 October.
Here’s our guide with more detail on what exactly the stamp duty holiday is - and how you could benefit from it.
First of all, what is stamp duty?
Under normal circumstances, buyers must pay stamp duty when buying a home or a piece of land worth £125,000 or more in England and Northern Ireland.
It is charged on a tiered basis (so you only pay the higher rates on the slice above any threshold – the same as income tax).
These are the rates:
- Up to £125,000: 0%
- On the portion from £125,001 to £250,000: 2%
- On the portion from £250,001 to £925,000: 5%
- On the portion from £925,000 to £1.5m: 10%
- Above £1.5m: 12%
There are exemptions available for first-time buyers, who don’t have to pay stamp duty on the first £300,000, so long as the home doesn’t cost more than £500,000.
Meanwhile, people buying additional property for £40,000 or more, such as second homes, pay an extra 3% of stamp duty on top of regular stamp duty rates. The surcharge effectively works as a slab tax. In other words, the 3% loading applies to the entire purchase price of the property.
There’s also an additional 2% stamp duty levy set to be imposed on non-UK residents who buy property in England and Northern Ireland from April 2021.
Find out more in our guide on stamp duty and how to calculate it.
So how does the stamp duty holiday work?
Sunak’s stamp duty holiday means that buyers only start to pay stamp duty on property above £500,000 in England and Northern Ireland.
This is for people buying their first home or moving up or down the housing ladder.
These are the holiday rates:
- Up to £500,000: 0%
- On the portion from £500,001 to £925,000: 5%
- On the portion from £925,001 to £1.5m: 10%
- Above £1.5m: 12%
The 3% stamp duty surcharge applies on top of the holiday rates, so people buying additional homes attract a 3% stamp duty bill on the first £500,000 of property.
This still results in a saving, because the 3% rate previously applied on the first £125,000, with higher rates above that.
We’ve drawn up a handy interactive table to reveal just how much buyers could save.
It’s worth remembering that the tax-free threshold announced at the the Budget this week will be cut from £500,000 to £250,000 on housing sales that complete between 1 July until 30 September.
The threshold for the nil rate band will then fall back to its usual level of £125,000 on 1 October.
Similar ‘holidays’ were introduced last year in Scotland and Wales, where the property tax is different.
The Scottish government increased the threshold of its Land and Buildings Transaction Tax (LBTT) from £145,000 to £250,000.
And the Welsh government raised the threshold of its Land Transaction Tax (LTT) from £180,000 also to £250,000.
They are both set to end on 31 March.
Why has the stamp duty holiday been extended?
The stamp duty holiday, combined with many people reassessing their homes and lifestyles during the pandemic, prompted a jump in housing transactions.
It led to a congested sales pipeline and the home buying process taking longer than usual. The average time it takes from a sale being agreed to completion – when ownership legally changes hands – is now approaching four months.
As a result, around 70,000 people who agreed sales in 2020 were in danger of missing the 31 March deadline, according to our research.
And a petition calling for the stamp duty holiday to be extended received more than 100,000 signatures, triggering a debate to be held in Parliament in February.
What could the stamp duty holiday mean for you?
‘Hundreds of thousands’ of buyers who have already agreed a sale with little or no expectation of making stamp duty savings will benefit from the Chancellor’s three-month extension to the main stamp duty holiday, according to Richard Donnell, research director at Zoopla.
He explained: "Buyers who are now looking for a new home could benefit from the full savings of up to £15,000 if they complete their sale within less than four months.
"But all buyers who enter the market within the next three months are very likely to benefit from savings of up to £2,500 if they complete by the end of September."
Home buyers in London and the south east typically benefit the most from a stamp duty holiday because higher average prices in these regions translate into the biggest savings of up to £15,000.
Donell added: "Some 234,000 sales have been agreed since mid-December, with one in five of these transactions in the south east of England.
"Buyers in the south east will make savings of £271m. Total savings across the country, allowing for four months between sale agreed and completion, is around £987m."
And while the stamp duty holiday means significant savings for some buyers, others will see no change. For example, first-time buyers purchasing a home in England or Northern Ireland for up to £300,000 have been exempt from this property tax since 2017.
Tell me a bit about the background of stamp duty
The government introduced historic reforms to stamp duty in 2014. It saw the method of calculating the tax change - as well as the rates (Scotland followed with changes in 2015).
This effectively cut the tax bill on homes worth up to £940,000 (which account for more than 95% of households) but cranked up the charges for more expensive properties.
In 2009, the most expensive stamp duty band was 4%. This is now 12%, rising to 17% for overseas buyers purchasing in England from April.
4 key housing takeaways from the Budget
From the stamp duty holiday extension to the new 95% mortgage guarantee scheme, here’s how Chancellor Rishi Sunak’s announcements in the Budget could impact you.
1. Stamp duty holiday extension
Chancellor Rishi Sunak has extended the stamp duty holiday by three months.
The threshold at which buyers start paying stamp duty was temporarily raised from £125,000 to £500,000, in England and Northern Ireland, last July. The deadline has now been moved from the end of March until 30 June.
And to avoid a ‘cliff edge’ when this period ends, the tax-free threshold will then drop from £500,000 to £250,000 for a further three months until 30 September.
The threshold for the nil rate band will fall back to its usual level of £125,000 on 1 October.
Read our stamp duty holiday explainer and our guide on regular stamp duty and how it's calculated for more details.
Who does it affect?
The move is great news for people in England and Northern Ireland who are either already in the process of buying a home and were in danger of missing the previous deadline of 31 March, or are planning to purchase a property in the immediate future.
The extension of the stamp duty holiday means buyers will save an average of £4,500 each and a maximum of £15,000 if they complete their property purchase – legally transferring ownership – within less than four months.
Meanwhile, those who finalise a property purchase between 1 July and 30 September will be able to save up to £2,500 each.
Richard Donnell, research director at Zoopla, said: "Some 234,000 sales have been agreed since mid-December, with one in five of these transactions in the south east of England.
"Buyers in the south east will make savings of £271m. Total savings across the country, allowing for four months between sale agreed and completion, is around £987m.
"The tapering move by the Chancellor means that nearly half of sales in England will be free of stamp duty. Last year, some 46% of all home sales were for properties of up to £250,000."
2. 95% mortgage guarantee scheme
A new mortgage guarantee scheme has been unveiled to help people buy a property with a deposit of just 5%.
The initiative, which will be available from April, will operate in a similar way to the previous Help to Buy mortgage guarantee scheme, with lenders able to purchase insurance from the government to cover some of their losses if the property is repossessed.
The scheme aims to increase the availability of 95% loan-to-value (LTV) mortgages through reducing the amount of risk lenders have to take on.
There are currently just a handful of these deals on offer, with the majority only available to people who meet certain criteria.
Borrowers using the new guarantee scheme will have the opportunity to take out a fixed rate mortgage for five-years if they want to.
A number of lenders, including Lloyds, NatWest, Santander, Barclays and HSBC, have already signed up to the scheme.
The initiative, which comes after Prime Minister Boris Johnson pledged to “turn generation rent into generation buy” at the Conservative party conference in October last year, will run until December 2022, by which time it is hoped the availability of 95% LTV mortgages will have recovered.
Who does it affect?
Unlike the Help to Buy equity loan scheme, the new mortgage guarantee scheme will be available to both first-time buyers and existing homeowners, including those trying to remortgage with low levels of equity in their property.
Buyers will also be able to use it to purchase any type of property, not just a new-build home.
The only restriction is that the property cannot cost more than £600,000 and it must be your main home, not a buy-to-let property or second home.
Donnell explained: "Supporting buyers with small deposits is key to widening access to home ownership for a part of the mortgage market that has been under-served.
"Our analysis shows the scheme will have the greatest benefits for buyers in lower value housing markets in northern England and Scotland where a 95% mortgage is more attainable.
"The scheme will have less impact for buyers in southern England where high house prices are a major barrier to being able to afford a 95% mortgage."
3. Tax thresholds frozen
A number of tax thresholds, including those for capital gains tax (CGT) and inheritance tax, will be frozen until April 2026.
The CGT threshold will be held at £12,300 for the 2021/22 tax year, while the inheritance tax one will remain at £325,000.
Who does it affect?
The move to freeze CGT means anyone selling an investment property or a second home will have to pay capital gains tax of 28% on any increase in the property’s value since they first bought it above £12,300.
Couples who jointly own a property can combine their CGT allowance to £24,600.
Inheritance tax is paid at 40% on all assets worth more than £325,000 that are not left to a spouse or civil partner, although this threshold increases to £500,000 if you leave your home to your children or grandchildren.
If you are married or in a civil partnership, and your estate is worth less than the threshold, you can transfer the difference between the value of what you leave behind and the threshold to your partner.
The freezing of the thresholds for these two taxes at a time of strong house price growth means more people will be liable for them and will face larger tax bills.
Donnell said: "Speculation over a hike in capital gains tax has already forced some landlords to act and we have seen a spike in the flow of homes for sale that were previously rented."
Our guide gives the lowdown on your tax liabilities as a landlord.
4. Extension of the furlough scheme
The furlough scheme will be extended until the end of September.
Employees covered by the scheme will continue to receive 80% of their salary for hours not worked, although their employers will have to make a contribution towards this in August and September.
Government support for people who are self-employed will also continue until the end of September through two grants equivalent to 80% of three months’ average trading profits, capped at £7,500.
Who does it affect?
The extension of financial support for people whose jobs have been impacted by the pandemic is good news for the housing market in general.
If property owners with a mortgage continue to receive a regular income despite not being able to work their usual hours, it makes it less likely that they will fall into mortgage arrears and have their home repossessed.
High numbers of forced sales as a result of arrears and repossessions typically lead to house price falls, so preventing people from losing their homes should help to support property values.
Stamp duty holiday extension confirmed: everything you need to know
The Chancellor has extended the stamp duty holiday until the end of June. It will then be tapered off for a further three months. Here’s what it could mean for you.
Chancellor Rishi Sunak has announced the stamp duty holiday will be extended for a further three months until the end of June.
The extension, which will apply to all buyers, means people in England and Northern Ireland will not have to pay stamp duty on the first £500,000 of property if they complete – in other words, legally transfer ownership – before June 30.
To avoid a ‘cliff edge’ at the end of this period, stamp duty will not be charged on the first £250,000 of a property purchase between 1 July and 30 September.
The threshold for the nil rate band will then fall back to £125,000 on 1 October.
The extension of the holiday means nine out of 10 people buying a property will not have to pay stamp duty, saving them an average of £4,500 each and a maximum of £15,000 for those purchasing a home costing £500,000.
Richard Donnell, research director at Zoopla said: "The stamp duty extension to June means a further 234,000 buyers who have already agreed a sale will save an estimated £987m on stamp duty.
"And those who agree a sale from now will be guaranteed savings of up to £2,500 as long as they complete before the end of September.
"This will take 46% of homes out of stamp duty until the end of September. This removes a major cost from moving home that hits hardest in southern England where the mortgage guarantee is less effective.”
Why has the stamp duty holiday been extended?
The Chancellor announced the stamp duty holiday in July 2020 to help kickstart the housing market in England and Northern Ireland following the first national lockdown.
The tax break, combined with many people carrying out a ‘once-in-a-lifetime’ re-assessment of their housing needs in the face of the pandemic, triggered a mini home buying boom.
But the steep spike in housing transactions led to a congested sales pipeline and the home buying process taking longer than usual.
We estimated that around 70,000 people who agreed sales in 2020 were in danger of missing the 31 March deadline.
And a petition calling for the stamp duty holiday to be extended received more than 100,000 signatures, triggering a debate to be held in Parliament in February.
Can you still buy a home before the stamp duty holiday ends?
Yes, hundreds of thousands of buyers who have already agreed a sale with little or no expectation of making stamp duty savings will benefit from the Chancellor’s three-month extension to the main stamp duty holiday.
Buyers who are now looking for a new home could benefit from the full savings of up to £15,000 if they complete their sale within less than four months.
But all buyers who enter the housing market within the following months are very likely to save up to £2,500 if they finalise their purchase by the end of September.
Donnell explained: "Some 234,000 sales have been agreed since mid-December, with one in five of these transactions in the south east of England.
"Buyers in the south east will make savings of £271m. Total savings across the country, allowing for four months between sale agreed and completion, is around £987m."
If you're looking to take advantage of the stamp duty holiday, you'll need to have your ducks in a row well before it ends.
The time it takes between agreeing a sale and completing is normally around 90 days.
But our research shows that the average time for a sale to cross the line is now just under four months – around a fortnight longer than normal.
What happens when the stamp duty holiday ends?
Once the stamp duty holiday ends on 30 June, there will be an interim period until 30 September when the tax-free threshold will fall to £250,000.
The tapering move means that nearly half of housing sales in England will be free of stamp duty. Last year, some 46% of all home sales were for properties of up to £250,000.
What are the stamp duty thresholds from 1 October 2021?
The former stamp duty rules will apply from 1 October. This means buyers can be charged between 2% and 12% tax (or up to 17% if they are a foreign investor) on their property purchase, depending on the value of the home they are buying and if they own more than one property.
Stamp duty is calculated as a percentage of the property you are buying. It applies to freehold and leasehold properties, whether you’re buying outright or with a mortgage.
For existing homeowners, the rates are:
- 0% up to £125,000
- 2% on £125,001 - £250,000
- 5% on £250,001 - £925,000
- 10% on £925,001 - £1.5m
- 12% on any value above £1.5m
For example, if you buy a flat for £275,000, the stamp duty you owe would be:
- 0% on the first £125,000 = £0
- 2% on the next £125,000 = £2,500
- 5% on the final £25,000 = £1,250
Total stamp duty = £3,750
Read our guide to find out more about stamp duty and how it's calculated.
Landlords and second-home owners
For owners of more than one property, a surcharge of 3% on top of the standard stamp duty rates apply.
However, if you sell a home within three years of purchasing a second property, you can apply for a refund of that 3%.
It is also possible under some circumstances to claim multiple dwellings relief.
Dig into the detail in our Q&A on the 3% surcharge.
Non-UK residents
From April 2021, an additional 2% stamp duty levy will be imposed on non-UK residents who buy property in England and Northern Ireland.
It means that international buyers of second homes could pay up to 17% tax on expensive properties.
The 2% is on top of standard rates and in addition to the 3% surcharge for any investors who own property elsewhere.
First-time buyers
First-time buyers are exempt from paying regular stamp duty on properties costing up to £300,000 and pay 5% on the value of a property between £300,000 and £500,000.
A first-time buyer will pay:
- 0% on the first £300,000
- 5% on the remainder up to £500,000
So a first-time buyer purchasing a £275,000 flat would pay no stamp duty.
For a house costing £475,000, a first-time buyer would pay:
- 0% on the first £300,000 = £0
- 5% on the final £175,000 = £8,750
Total stamp duty = £8,750
However, if the purchase price is more than £500,000, first-time buyers cannot claim the relief and must pay the standard rates.
For example, a property purchased at £700,000 would result in a stamp duty bill totalling £25,000 even for a first-time buyer.
Stamp duty relief was introduced in November 2017 to help people step onto the property ladder.
Our guide on the first-time buyer exemption has more detail.
When do you pay stamp duty?
You must pay stamp duty within 14 days of completing your property purchase. Your solicitor or conveyancer will usually file this return and transfer the money on your behalf.
What other government support is available?
During the second lockdown, the government extended its offer of mortgage payment holidays. Borrowers who need help paying their mortgages can still request a holiday of up to six months until 31 March 2021.
Meanwhile, the government's Help to Buy scheme offers an equity loan to buyers with a 5% deposit. The initiative will close on 31 March and be replaced with a new version, which will only be available to first-time buyers.
Find out some of the other initiatives and allowances you could benefit from before the end of the tax year in our article.
The Chancellor also announced a new scheme in the Budget under which home buyers will be able to take out a 95% mortgage, with the government acting as guarantor.
The scheme comes after Prime Minister Boris Johnson pledged to “turn generation rent into generation buy” at the Conservative party conference in October last year. A number of lenders have already signed up to the scheme, which will launch next month.
What about stamp duty in Scotland and Wales?
Housing is a devolved issue in Britain so stamp duty only applies in England and Northern Ireland.
Scotland and Wales have equivalent taxes, and similar breaks have been introduced.
Scotland
In April 2015, stamp duty was replaced by Land and Buildings Transaction Tax (LBTT).
In Scotland, the LBTT rates are:
- 0% up to £145,000
- 2% on £145,001-£250,000
- 5% on £250,001-£325,000
- 10% on £325,001-£750,000
- 12% on any value above £750,000
First-time buyers pay no LBTT up to £175,000.
Wales
Property owners in Wales have paid Land Transaction Tax (LTT) since April 2018.
LTT rates are:
- 0% up to £180,000
- 3.5% on £180,001-£250,000
- 5% on £250,001-£400,000
- 7.5% on £400,001-£750,000
- 10% on £750,001-£1.5m
- 12% on any value above £1.5m
In December, the Welsh government introduced an additional charge for second-home owners.
Second home-owners will now pay a 4% levy when they buy homes up to £180,000, rising to 16% for homes worth £1.6m or above.
Help to Buy: how it's impacted home buyers
The latest government figures reveal who has used the flagship scheme to step onto or up the housing ladder – and how.
More than 290,000 people have used the government’s flagship Help to Buy equity loan scheme to buy a home.
A total of 291,903 buyers had used the scheme by the end of September, seven-and-half years after it was first launched.
Help to Buy enables people to purchase a new-build home with just a 5% deposit, which the government tops up with a 20% equity loan that is interest-free for five years.
The average cost of a home purchased through the scheme was £290,000 between July and August 2020, while more than half of those using Help to Buy had a household income of £50,000 or less.
Who has used Help to Buy?
First-time buyers
First-time buyers have benefitted the most from Help to Buy, accounting for 82% of all purchases made through the initiative, government figures showed.
The average property bought using Help to Buy by people taking their first step onto the housing ladder cost £279,995, while they had a typical household income of £53,218.
A new version of the scheme is being launched on 1 April that will be available exclusively to first-time buyers.
It will also see the introduction of regional price caps on the value of properties that can be purchased through the scheme.
These price caps range from £186,100 in the north east to £437,600 in the south east and £600,000 in London.
Homeowners
People who already owned a home or had previously done so have also benefitted from Help to Buy.
While they only account for 18% of all purchases made using the scheme, the typical home they bought was significantly more expensive than those purchased by first-time buyers at an average of £346,995, while they had an average household income of £60,960.
Homeowners were also more likely to put down deposits that were higher than 5%, with nearly a third putting down a deposit of more than 15%.
Buyers in London
Unlike the rest of the country, where the size of the equity loan is capped at 20% of the property’s value, people buying a home in London can apply for an equity loan worth 40% of their property’s value.
Unsurprisingly, the average purchase price paid by people using Help to Buy in London was significantly higher than the national average at £430,168.
What sort of property have they bought?
A quarter of all properties bought by first-time buyers since Help to Buy’s launch have been detached houses, while 34% have been semi-detached homes.
Only one in five properties bought using the initiative have been flats, which are typically seen as first-time buyer homes.
What’s the background?
The Help to Buy equity loan scheme was designed to overcome one of the biggest barriers many people faced to homeownership, namely saving a large enough deposit to enable them to qualify for a mortgage.
The number of homes bought using the government scheme has increased every year since its launch, apart from in 2020 when transaction levels were impacted by the pandemic lockdowns.
Even then, the number of homes bought using Help to Buy were still 11% higher between July and August 2020, once the housing market had fully reopened, than they were in the same three months the previous year.
Top three takeaways
- More than 290,000 buyers have used the Help to Buy equity loan scheme since it was first launched
- First-time buyers have been the biggest beneficiaries, accounting for 82% of all purchases made through the scheme
- The average cost of a home bought through Help to Buy was £290,000 between July and August 2020