The government has cut stamp duty as part of an economic growth plan.
The announcement of this new stamp duty plan aims to increase growth in the housing market and help many first time buyers get on the property ladder. However, some critics have claimed that this move could make the housing crisis worse.
What happened to the first stamp duty cut?
In 2020, former chancellor, Rishi Sunak, introduced a stamp duty holiday to soften the blow to the property market from the pandemic. This tax break did boost the number of houses sold, but some experts say1 the increased house prices, which became higher because of the measure, ate into any savings buyers may have made.
This stamp duty holiday ended on the 30th June 2021.
How does stamp duty work?
We currently operate on stamp duty bands, which means that the more value your home has, the more stamp duty you pay. Previously, you would pay no stamp duty on the first £125,000 of a property purchase and the total you would pay was calculated off everything after this amount.
How much will the stamp duty cut save me?
Before today, first time buyers would pay no stamp duty on homes worth less than £300,000 but these rates have now changed across the board, effective from the 23rd September 2022.
These are the new rates that chancellor has proposed:
- The minimum threshold has been raised to £250,000
- The threshold for first time buyers has also been raised to £425,000
- The value at which first time buyers can claim relief has been raised to £625,000 from £500,000
The following are the proposed rates:
- £0-£250,000 = 0%
- £250,000 - £925,000 = 5%
- £925,000 - £1,500,000 = 10%
- £1,500,000 and over = £12%
According to GOV.UK2, if you buy a house worth £600,000 as a first time buyer. You'd be exempt for the first £425,000 of that, so you'd owe tax on £175,000.
With the old rules you'd pay £20,000 in stamp duty but with the current rules you'd only owe £8,750, which is a saving of £11,250.
The impact cutting stamp duty could have
The Prime Minister's goal with cutting the stamp duty levy is to encourage growth in the market, since it allows more people to move onto the property ladder. However, with lower stamp duty comes an influx of interest in cheaper homes, since lower fees mean more incentive to buy.
This can be a good thing if you’re able to get a home under one of the inexpensive brackets since you would save money on stamp duty.
However, increased interest and demand in affordable homes means that property prices increase3. It’s a Catch-22 and has the potential to make buying an affordable home just as much, or even more of a challenge.
Talk to an expert
Only time will tell what impact this will have on first time buyers and the property market at large. It can certainly be overwhelming coming to terms with the ins and outs of home buying. If you have any questions, get in touch with an adviser today.
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