It’s expected that a cut in Stamp Duty will be announced by new Prime Minister Liz Truss and Chancellor Kwasi Kwarteng in a ‘mini-budget’ at the end of this week – but could it really stir up the sluggish property market, and might it save you money? Certainly the end of the Stamp Duty holiday has been a drag on the property market.
Stamp Duty is a widely disliked charge on property transactions, and though a Stamp Duty holiday after the pandemic was partly credited for revitalising the market, in the current slump it’s argued that reducing stamp duty will stimulate economic growth and get more first-time buyers on the property ladder.
The Stamp Duty holiday, which ended a year ago, raised the nil-rate stamp duty band from £125,000 to £500,000, with potential tax savings for buyers of £15,000. The relief was tapered off in its final three months to a threshold of £250,000 which would have given a maximum stamp duty savings of £2,500.
Plans to cut or even abolish Stamp Duty would, it’s argued, be paid for by the boost it would afford the housing market, and would encourage first-time buyers and house movers and offset the threat of soaring mortgage rates. At the moment, since it affects more valuable properties most, Stamp Duty is often seen as a stealth tax.
In the last two years to July, the average price of a house in England increased by 23 percent to £311,583 according to the Office for National Statistics. So in that period, the average Stamp Duty bill increased by 110pc from £2,661 to £5,579.
Housing market specialists argue that a cut in Stamp Duty cuts could encourage downsizing, helping ’empty nesters’ to move and free up affordable family homes, and could also encourage people to buy more energy-efficient properties.
An adjustment to Stamp Duty bands could also make house-buying more affordable. At present in England and Northern Ireland, there is no Stamp Duty on the first £125,000 of a property, while buyers pay tax at 2pc on the value up to £250,000, 5pc on the difference up to £925,000, 10pc between £925,000 and £1.5m, and 12pc above this level. Bands are slightly different in Scotland and Wales.
In 2006, 27 percent of homes sold for below the Stamp Duty tax band, but now, when property prices have risen by 81 percent, the figure for transactions falling below the minimum Stamp Duty band has halved to 12 percent. Experts estimate that if the minimum Stamp Duty band were raised to £225,000, more than three times as many sales in England would be tax-free, and more buyers would avoid having to pay an average Stamp Duty bill of £11,443.
The government would also have the option of introducing higher nil-rate bands to encourage groups other than first-time buyers, for instance considering lower rates of stamp duty for homes that are more energy efficient. under recent proposals to introduce a ‘green’ Stamp Duty, a £250,000 end-of-terrace house from the 1900s with an EPC rating of E might cost its buyer £4,796 in Stamp Duty, five times higher than the bill for someone buying an energy efficient house of the same value.
But some experts warn that stimulating the housing market with a Stamp Duty cut could push up house prices even further, at a time when the supply of homes is already inadequate. Mortgages could go up too, as it’s already expected that the Bank of England will raise the base rate further this week, pushing borrowing rates even higher.
See also: Property, Payments and Foreign Exchange