There had been a flurry of speculation over the last few days that the UK government would bring forward a reduction in Stamp Duty Land Tax (SDLT). Initially this move was planned for the autumn budget but was brought forward amid concerns it could induce a period of stagnation for the property market. So, what are the changes and how do they impact the UK property market?
Immediately after the budget announcement yesterday there was a major change in SDLT in England and Northern Ireland. We are currently awaiting details from the Scottish and Welsh government who have devolved powers over property tax. However, the changes for England and Northern Ireland are significant.
All property transactions completed from 8 July onwards will fall under the new SDLT rates. So effectively there will be no stamp on residential property purchase with a value up to £500,000 acquired between 8 July 2020 and 31 March 2021. The previous special rules for first-time buyers, no SDLT charged on the first £300,000 and a reduced rate up to £500,000 will be replaced in the short-term by the above changes.
Avoiding a backlog
While the UK government has introduced an array of measures to help the UK property market and economy in general, this announcement was not unexpected. The information seemed to have been leaked earlier this week with an original timescale of autumn. This prompted many buyers to revisit their plans in the short to medium-term bearing in mind the potential savings on SDLT around autumn time. Amid serious concerns about a backlog of property purchases, which would impact activity and property prices, the government was forced to react.
The initial surge of pent-up demand in the immediate aftermath of the lockdown is starting to fade therefore the last thing the industry needed was a further period of “treading water”. So what does this mean for the wider UK property market?
Purchase of additional properties
Under previous SDLT regulations those acquiring additional properties were charged a further 3% on each stamp duty band. While this additional 3% charge still remains, investors will also benefit from the realignment of SDLT rates detailed above. So effectively, those acquiring property worth up to £500,000 will only pay 3% until the end of March 2021. As you’ll see from the chart below, there are still staggered rates on the additional ranges but the benefit of the changes has been spread right across the board.
This is certainly a bold move by the UK government which is expected to cost in the region of £3.8 billion at a time when government finances are struggling. However, the prospect of a collapse in UK property prices and the knock-on effect of negative equity and repossessions were far greater challenges.
Is this enough to save the property market?
There is no doubt that yesterday’s changes will introduce a level of support while the sector finds its feet again. Nobody really knows how life will be living with the coronavirus and how this might impact property prices, rental yields and capital appreciation. So, this short-term financial assistance from the UK government has been well received.