The chancellor, Kwasi Kwarteng, has confirmed a permanent stamp duty cut, with no tax to be paid on properties up to the value of £250,000.
Kwarteng announced the policy in a mini-budget on Friday, almost a year after the last stamp duty holiday ended. He also increased the threshold for first-time buyers to £425,000. Here we explain the changes in full.
What is stamp duty and how is it changing?
Stamp duty is a tax paid by homebuyers in England and Northern Ireland, based on the value of the property they are buying. The government has announced a permanent change to how the tax works, with the threshold at which buyers have to pay the duty rising from £125,000 to £250,000.
Previously, the first £125,000 of a property’s value was tax free. Buyers were then charged 2% of the value of the property above that threshold up to £250,000, and 5% on the portion between £250,001 and £925,000.
Under the new system, the first £250,000 of a property’s value will be exempt, and buyers will pay 5% of the value of the home from £250,001. The portion between £925,001 and £1.5m will continue to be taxed at 10%, and any property worth more than that will be subject to stamp duty rates of 12%.
The level at which first-time buyers have to pay stamp duty will rise from £300,000 to £425,000 in a move to increase home ownership. Under the plans, the first-time buyer relief will be applicable to properties worth up to £625,000, compared with the current £500,000.
What are the rules in Scotland and Wales?
A similar tax is paid in Scotland and Wales, but the rules and thresholds are different. In Scotland it is called land and buildings transaction tax, and is not payable on the first £145,000 of a property’s value.
Meanwhile, in Wales, the fee is called the land transaction tax, which is payable on properties above the value of £180,000. As the tax is devolved, the Scottish and Welsh governments will receive funding to allocate “as they see fit”, the Treasury said today.
Scotland and Wales introduced their own tax breaks when the stamp duty holiday in England and Northern Ireland was announced in 2020.
I’m in the process of buying a property – what does it mean for me?
People in the process of buying a property should benefit from the tax break as it comes into effect on Friday. Contact your solicitor to ensure you get the discount.
What are experts saying about the changes?
The reaction from property experts has been mixed, with some saying it will ease cost pressures on buyers in the short-term, while warning it will cause house prices to spike.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “The horrendous cost of buying a house just got cheaper – at least for now.
“Even if the change does persuade more people to buy, a shortage of buyers isn’t the biggest problem facing the property market. The real brake on the property market is a severe shortage of supply, because the average agent only has 36 properties on the books.”
But Tim Bannister, Rightmove’s housing expert, said while it could lead to some “unseasonal price rises over the next few months”, the permanent change may mean the increase in demand is slower than the temporary cut in 2020. “Plus, buyers could save up to £15,000 during the temporary stamp duty holiday, while the savings are lower with this change,” he said.
“The first-time buyer threshold change means we could see more first-time buyers who can afford it making a jump to a bigger home as their first move.”