Stamp Duty Land Tax Changes - Does This Benefit The First Time Buyer?

On the 8th of July 2020 HMRC announced that there would be changes to Stamp Duty Land Tax (SDLT) in the form of a Stamp Duty Holiday. That means that these changes are not permanent. These changes only include properties purchased in England and Northern Ireland but it means that you do not start paying tax on the purchase of a new residential property below the value of £500,000. Properties over this threshold also benefit from some change in the amount of tax payable but what does this mean for first time buyers?


Previous SDLT Rates


If we first look at the previous rates that were payable on the purchase of a residential property so that we can see what changes have taken place.


Before July 8th 2020, when buying a property you would be charged the following:


Rates Charge Band

0% Up to £125,000

2% Over £125,000 and under £250,000

5% Over £250,000 and under £925,000

10% Over £925,000 and under £1.5million

12% Over £1.5million


If you were a first time buyer (FTB) before this date you there were (and still are) first time buyer rates. As a FTB you could purchase your first residential property you would pay 0% SDLT on the firs £300,000 of a property purchase.


If the property exceeded £300,000 then between £300,000 and £500,000 you would pay 5% in SDLT. If the property exceeded £500,000 then standard rates would apply.


To qualify for these rates as a FTB all individuals that would be named on the title could not own a property previously.


To put some numbers to the above rates, let's have a look at an example:


As of March 2020 the average property value in the UK is £231,855 (source). So we shall use this as the value throughout this example.


If, when purchasing this property you were not a FTB your SDLT would be calculated as below


Rate Charge Band Tax Payable

0% Up to £125,000 £0

2% Over £125,000 and up to £250,000 £2,137.10

Total Payable £2,137.10


Compared this to if you were a FTB:


Rate Charge Band Tax Payable

0% Up to £300,000 £0

Total Payable £0


As a first time buyer you would have savings of £2137.10!


Purchasing Additional Residential Properties


If you are in the position to purchase a residential property for rental income there are higher rates that apply.


The higher rate is 3% on the above rates. So if the property you were purchasing for rental was valued at £120,000 then you would pay 3% SDLT instead of 0% meaning that you would pay SDLT of £3,600.


SDLT Holiday Rates


So, what changes have taken place? Quite simply, there has been a reduction in rates until 31st March 2021.


The new rates that apply from 8th July 2020 and until 31st March 2021:


Rates Charge Band

0% Up to £500,000

5% Over £500,000 and under £925,000

10% Over £925,000 and under £1.5million

12% Over £1.5million


These rates apply for both first time buyers and existing owners that are purchasing a new primary residence. With the average property value being £231,855 that would mean that you would not pay any SDLT on the purchase.


The additional rates still apply to the new above rates when purchasing an investment residential property. In this instance you could buy a property valued at £500,000 with only 3% SDLT!


How Does This Benefit First Time Buyers?


This is the question that all the new buyers will want to know. SDLT is confusing even when the rates do not change.


So put simply the benefit to the first time buyer here is that they can now buy their first property up to the value of £500,000 without paying any SDLT.


According to Zoopla the average value of a property purchased by first time buyers is £220,000. If this is true then the holiday with Stamp Duty does not make a difference the the first time buyer as it would suggest that they were not buying properties above the threshold of their already established preferential rates.


The downside of the FTB buying a higher priced property is that they often cannot buy one due to the monthly mortgage payments and the affordability checks that are carried out by the lenders.


The question then ...


Who Does This Benefit?


Using the information of the average house price in the UK it would suggest that it is not going to benefit the average buyer all that much either. They would save the 2% that they would have paid previously which was a little over £2,000.


The main benefactor of this holiday is going too be property investors as they will be able to purchase higher value properties and pay only 3% up to £500,000. Likewise, it will benefit those that are looking to buy a higher value property over £250,000.


Closing Thoughts


As I work in finance I have seen an uplift in people getting excited about this change. I am certain that it will help the property market and stop it from crashing as it will get people to buy and sell to benefit from the reduction whilst they can. In fact, I know that a few mortgage brokers have had an increase in enquiries following on from the announcement.


That being said, I feel disheartened that it does not benefit the average buyer all that much and that it certainly is not of benefit to the FTB as they often cannot afford the higher priced properties to benefit from the reduction.


We do not know at this time how the rates will change once the holiday is over. They may go back to their previous rates as noted above or they may change again altogether so for now we will have to wait and see.


With thanks


Ryan


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