The government’s stamp duty holiday has been rolled out in order to remedy an ailing property market suffering from the Covid pandemic.
This tax break is set to last for 9 months before ending in 31st March 2021 and relieves first-time buyers from paying stamp duty on properties valued under £500,000 and offers a 3% discount on each band after this. The rates are as follows: (1)
|Property Value (£)||Stamp Duty Rate for First Time Buyers|
|500,000 or less||0%|
|500,001 - 925,000||5%|
|925,000 - 1.5 million||10%|
|1.5 million +||12%|
This is not the first time that the government has proposed reductions to stamp duty as similar cuts were made in 2017 by Phillip Hammond, the Chancellor of the Exchequer under Theresa May. Hammond provided a similar rationale at the time, arguing that, by abolishing stamp duty paid on property under £300,000, first-time buyers would get a leg up on the property market.
The move was criticised by the independent watchdog the Office for Budget Responsibility (OBR) who argued that the move would lead to a 0.3% rise in property prices and inflate the market (2). The result is a strange turn of events where those who owned property actually benefited most by collecting a portion of the money that was lost to tax.
The current stamp duty holiday is burdened with the same shortcomings with the most significant being that many first time buyers are already exempt from stamp duty and, therefore, will not benefit (3). The OBR have also predicted another rise in house prices, this time by 0.5% (4) which, again, funnels cash towards those with existing property.
While buyers with lower incomes are missing out, wealthier purchasers (predominantly in the South-East and in Outer London) are cashing in. According to Rightmove, there has been a surge in demand for homes priced between £400,000 and £500,000, many of which belong to Conservative seats in the outer regions of London (5). What we are left with is a political manoeuvre that, despite being marketed as help for first time buyers, benefits sellers and a minority of this demographic.
(2) https://amp.theguardian.com/uk-news/2017/nov/22/stamp-duty-cut-first-time-buyers-fix-housing- market-budget-2017
(3) https://www.resolutionfoundation.org/press-releases/30bn-top-up-to-pandemic-support-takes-the- total-to-almost-10-per-cent-of-gdp-and-borrowing-to-350bn/
(4) https://www.mortgagesolutions.co.uk/news/2020/07/15/stamp-duty-holiday-will-trigger-small-rise- in-house-prices-and-transactions-obr/
(5) https://www.theguardian.com/money/2020/jul/28/cut-in-stamp-duty-has-only-really-benefited- london-says-zoopla