This Christmas offers welcome respite after the worst year in recent years, especially for those caught up in the madness of the stamp duty rush.

On 8 July 2020, a stamp duty land tax holiday kicked in for those getting on or moving up the property ladder in England and Northern Ireland.

This raised the tax-free threshold from £125,000 to £500,000 in a move the Government expects to take nine in ten buyers out of paying the tax.

Most solicitors who handle the legal transfer of property ownership in England are winding down for Christmas at this time of year.

Given that it usually takes 10-12 weeks for solicitors to complete the legal proceedings, buyers without a deal to buy their next home in place face an anxious festive period.

The same can be said for others who’ve already agreed to buy a new home, as the clock is ticking to seal the purchase before the end of March.

Chains are more complicated than ever with buy-to-let landlords joining first-time buyers and homeowners in the stampede to beat the deadline.

Stamp duty land tax implications

If you complete the purchase of a home in England worth £500,000 or less on or before 31 March 2021, you will pay no stamp duty land tax.

Those who buy a home worth between £500,000 and £925,000 pay a reduced tax rate of 5% if they complete before this date.

The Government estimates the average buyer who moves home between 8 July 2020 and 31 March 2021 will save around £4,500 in stamp duty.

For some, a potential stamp duty saving of £15,000 is the carrot being dangled in front of them. But if they miss the deadline, their stamp duty bill will shoot up by the same amount.

For example, George has agreed to buy a house for £565,000. He is due to pay no stamp duty on the first £500,000 and 5% on £65,000 (£3,250) if he completes the purchase on or before 31 March 2021.

If George completes his purchase on or after 1 April 2021 – and the Government announces no further changes to the holiday – his stamp duty bill will soar to £18,250.

This is because he will pay 2% tax on the portion of the house price from £125,000-£250,000 (£2,500) and 5% on the slice of the house price from £250,000-£925,000 (£15,750).

Extension or taper?

Using the previous example, it’s easy to see how a major cliff edge is approaching for buyers in England who are caught in a chain.

Campaigns are already under way to extend the scheme by six months to allow those in a complex chain time to complete deals they’ve agreed.

Another feasible option would be for the Government to introduce a gradual tapering off of the holiday from 1 April 2021.

For instance, the current tax-free threshold of £500,000 could decrease by £125,000 every three months until 1 January 2022, by which point the tax-free threshold would revert back to £125,000.

State of play from 1 April 2021

At the time of writing, with no extension to the stamp duty holiday in place, the rates and thresholds will revert back to the previous regime.

Subject to future change, the following stamp duty land tax rates in England and Northern Ireland will be in place from 1 April 2021 onwards.

Residential purchase price                  Rate
£0 – £125,0000%
Over £125,000 – £250,0002%
Over £250,000 – £925,0005%
Over £925,000 – £1.5m10%
Above £1.5m12%

For first-time buyers who currently pay no stamp duty on the first £500,000, the tax-free threshold will fall back to £300,000 on 1 April 2021. A tax rate of 5% will apply between £300,000 and £500,000.

If you want to understand the tax implications of moving home or more information about our personal tax service, contact us on info@stapletonsaccountants.co.uk or call 01363 773191.

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