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Is extension to holiday on Stamp Duty Land Tax all it seems?

by Iain Mason

Published on 16th March 2021

When Chancellor Rishi Sunak stood up to unveil the Budget in March, much of it had been pre-announced, and that included an extension to the holiday on Stamp Duty Land Tax.

extension to holiday on stamp duty land tax

The news was especially good for buyers who feared their sale might not complete before the 31 March deadline. The SDLT holiday had created a bulge in the housing market, with buyers rushing to take advantage of a tax cut with the potential to save them several thousands of pounds on their purchase.

Introduced in September as temporary nil rating of SDLT for property sales under £500,000, and due to run until 31 March 31, the holiday was extended in the Budget until 30 June.

After 30 June, the rules change yet again. From 1 July to 30 September the nil rate band drops to £250,000 and from 1 October returns to the standard rate, of £125,000.

On the face of it, a generous offer from the government, and indeed a nil rate band under £500,000 has saved several thousands of pounds for homebuyers – although this has to be offset, of course, against a rise in property prices partly fuelled by the SDLT holiday.

Dig a little deeper, though, and we can reveal that once the nil rate drops to £250,000 on 1 July, the saving may not be so impressive and here is why.

What happens when Stamp Duty Land Tax changes

Under the standard SDLT rating scheme – which we revert to on 1 October – the nil rate band is £125,000, followed by a £125,000 band at 2 per cent, and then from £250,000 up to £925,000 it is 5 per cent.

Currently, and up until 30 June, the nil rate band is £500,000 and then levied at 5 per cent thereafter.

However, it is for the period of 1 July to 30 September that the saving is less generous. Here, the nil rate band is £250,000 but then from there to £925,000 it is 5 per cent. The 2 per cent band is swallowed up by the nil rate band.

This means, there is a disproportionate increase in the Stamp Duty Land Tax levied after 1 July. Clearly, the lower the house price, the better the saving. If you are buying a property, and the transaction goes through after 1 July, then the saving on a sale under £250,000 is proportionately higher.

With the average house price in Swindon – where we help homebuyers and sellers with legal conveyancing – at around £243,000, many buyers will be able to take full advantage of the current SDLT regime. But it you are buying property costing more than £250,000, then you need to be aware that the saving you make is less attractive.

On a property sale at £500,000 the SDLT is currently zero. From 1 July it will be £12,500 and from 1 October back to the pre-pandemic rate of £15,000. This means the bulk of the SDLT levy returns from July not October.

It’s essential when buying a property to be fully aware of the all the costs, including legal fees, moving fees and, of course, Stamp Duty Land Tax.

At Optimum, our solicitor-led team specialise in property law and conveyancing. If you are buying or selling a property in Swindon, Wiltshire, Cheltenham or Gloucestershire, then please get in touch for advice.

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