As part of his Summer Statement delivered to MPs today, the UK Chancellor, Rishi Sunak, has announced, as was widely expected, that from now until 31 March 2021 property buyers will pay no stamp duty land tax (SDLT) on the first £500,000 when they move home.
The change will mean nearly nine out of 10 people getting on or moving up the property ladder will pay no SDLT at all with Mr Sunak saying the move was designed to help prevent a housing valuation crash.
Rishi Sunak
Jeremy Raj, national head of residential property at law firm Irwin Mitchell, said the “went further than most within the industry had dared hope. With an immediate increase in the tax free band to £500,000 for a fixed period until 31 March 2021, there will be a real boost to the sector.” He added that implementing it immediately rather than in the Autumn will also bring “widespread relief” as a delay “would potentially have stalled the market entirely.”
Mr Raj added that whilst the change will mean “the effect on the London market will be minimal, the vast majority of conveyancing transactions throughout the country will see a significant and immediate bonus effect that should encourage greater activity.”
One area that Mr Raj foresaw “a number of interesting discussions” was in regards to how this windfall is to be shared between buyers and sellers. “Clearly anybody that completed their transaction within the last month or two will be rightly upset to have missed out. It also remains to be seen whether the market reacts by adjusting prices overall, or leaves the windfall with buyers,” he warned.
Matthew Braithwaite, a partner at Wedlake Bell, also welcomed Mr Sunak’s announcement, predicting that it was “sure to provide a kick start to the housing market which the government is desperately seeking for home owners but there could be some other winners here too, as it appears that second home owners and landlords who pay SDLT at an additional three percent on the standard rates, are also likely to benefit in seeing their rate of SDLT cut as a consequence.”
He added that it “might also enable those who have had a pipe dream of acquiring a second home to achieve that much sought after work life balance in a post lockdown world to now do so.”
However, Mr Braithwaite warned this could have an adverse effect for first time buyers “if those who are in the market for second homes, and more likely to be in a better financial position to buy up housing stock, which is not then available for first time buyers or those selling their main home.”
Sean Randall, a partner at tax advisory firm Blick Rothenberg, said the move was “headline-grabbing stuff and will please many, particularly in the north.”
“But,” he warned, “evidence from previous stamp duty holidays shows that it is unlikely to increase sales volumes and will merely bring them forward. The end of the holiday was expected to coincide with a significant fall in the market. That would have made the fall even greater. It is good, therefore, that the holiday is longer than expected at eight months. But even eight months will be too short unless there really is a “V” shaped recovery.”
According to Mike Hodges, partner and head of private wealth at Saffery Champness, whilst the move was a “significant vote of confidence in the property market”, Mr Sunak “could have gone further”.
“For many years the property market has suffered with stagnation at the upper end of the market, with individuals such as retirees who perhaps have little to no day to day income locked into houses whose values have risen around them,” Mr Hodges said. “Introducing a relief to encourage downsizing could provide much needed stimulus in the market, enabling mobility up and down the property ladder.”
Although most of the sector welcomed the news, there was some caution, with James Allen, the director of Walker Crips’ Property Income fund, warning the policy actually risked greater long-term price volatility.
“When former chancellor Osborne touted his change to stamp duty, there were concerns from the market about a spike in transaction completions before the rises came into effect, followed by a dramatic slowdown with tax takings falling in relative terms. All of these things subsequently happened,” Mr Allen said.
He said the stamp duty “holiday” would increase transactions in the sub-£500,000 market.
“Tax take will obviously fall, and, at the end of the holiday, transactions are likely to slow significantly again, risking price volatility at a time when the market is craving stability,” Mr Allen said.
Katharine Arthur, a partner in the tax team at accountancy firm haysmacintyre, warned that hefty tax increases are still likely to come.
"The Chancellor's statement, while hugely positive for boosting jobs and hopefully the economy, means the Autumn Budget will surely include hefty tax increases to begin to make up what was already an eye-watering deficit,” she said.
Mr Sunak also announced the government would pay employers £1,000 for each furloughed employee who was successfully brought back to work at the end of the scheme in October.
The bonus would come into effect in January, for any employees who had been paid at least £520 per month for the preceding period.
He also gave an overview of the “Kickstart” scheme teased in this morning’s newspapers, under which the government would pay employers the minimum wage for six months, to take on 16-to-24-year-olds who were long-term recipients of unemployment benefits.
At the same time the Chancellor also announced a cut in the rate of VAT applied on tourism and hospitality services from 20 percent to five percent for six months. This takes effect on 15 July. Mr Sunak also pledged to pay half the bill for people eating out in the UK during the month of August.
The ‘Eat Out to Help Out’ discount will be eligible from Monday to Wednesday at participating UK businesses, up to a maximum of £10 per head.
Notably missing from the Chancellor’s statement was any mention of a more general ‘wealth tax’, a policy which had been canvassed by officials in recent months amongst the City’s private bankers.