By Neil Driver, Director at Davis Grant
At this point in time, it is looking likely that the Stamp Duty Land Tax (SDLT) holiday will end on 31 March as originally intended, despite calls from many in the property sector to extend this support.
Once the SDLT holiday ends, the previous thresholds will return, which will mean that house sales and transfers below £500,000 (that are not subject to additional surcharges or relief) will begin to attract tax once again.
As a reminder these are the thresholds that will be restored on 1 April 2021, once the SDLT holiday ends:
|Property or lease premium or transfer value||SDLT Rate|
|Up to £125,000||Zero|
|The next £125,000 (the portion from £125,001 to £250,000)||2%|
|The next £675,000 (the portion from £250,001 to £925,000)||5%|
|The next £575,000 (the portion from £925,001 to £1.5 million)||10%|
|The remaining amount (the portion above £1.5 million)||12%|
First-time buyers will continue to benefit from relief from 1 April 2021, which means that they will pay:
• No SDLT up to £300,000
• Five per cent SDLT on the portion from £300,001 to £500,000
This relief is open to anyone buying their first home or those buying with a first-time buyer.
To benefit from the current SDLT holiday the sale must be completed prior to 1 April 2021. This means that those currently preparing for the purchase of a property should be able to take advantage of this, as well as landlords looking to incorporate their portfolio into a limited company.
Those unable to complete in time should be aware that they face paying SDLT and should prepare themselves for this additional cost.
The impact of the end of the SDLT holiday is already being felt according to some in the property sector, who have identified the following trends:
House prices – There is already evidence that property prices are starting to fall in the run up to the end of the holiday.
For example, Reallymoving, a comparison site, analysed 24,000 conveyancing quotes and found that agreed prices fell by 6.2 per cent between October 1 and December 31 2020.
This is a trend that is likely to continue up until the end of March according to many experts, with further big drops of up to five per cent over the year predicted by Consultancy Capital Economics
Market distortion – Previous changes to SLDT have distorted the property market considerably.
The last time the Government announced that it would apply higher rates of stamp duty for landlords and second-home buyers the market saw a surge in buying activity, followed by a halving in transactions.
The cost of transfers will also increase – At the moment, landlords are able to benefit from a lower tax bill when transferring their portfolio into a limited company, in many cases only having to pay the additional three per cent surcharge on homes up to £500,000.
There are a number of benefits from transferring properties into a limited company, including the ability to benefit from interest relief on buy-to-let properties and lower tax bills thanks to the lower rates of Corporation Tax compared to Income Tax.
Rental prices may go up – As fewer people are able to purchase first homes due to the increased costs of SDLT many are likely to remain in rented accommodation for longer. As there is already a general shortage in rental properties in high demand areas, this may mean that landlords will increase the rental price of their homes.
However, landlords will still need to remain aware of lower incomes within many families and have an appreciation of local trends.