Rishi Sunak is being urged to extend the ‘holiday’ placed on stamp duty tax as the property market struggles to keep up with a surge in demand.
The recent extension of the Help to Buy scheme, coupled with the stamp duty holiday and historically low interest rates have created a window of opportunity for house buyers that many say is likely never to be replicated.
But as the stamp duty holiday edges nearer, trade bodies and property firms have called for an extension to the incentive in a letter to the chancellor.
Here is everything you need to know.
What is stamp duty?
Stamp duty is a tax levied on property purchases.
In England and Northern Ireland, homebuyers are required to pay the tax when they buy a residential property costing more than £125,000. This dips to £40,000 for those buying a second home.
The tax applies to both those who are buying a property outright or taking out a mortgage.
In Scotland, homebuyers are required to pay Land and Buildings Transaction Tax (LBTT) on properties over £140,000.
Stamp duty was originally introduced in England in 1694 as a measure to raise funds for the war against France and applied to property and some documents.
Described as “an act for granting to their Majesties several duties upon vellum, parchment and paper, for four years, towards carrying on the war against France”, the tax proved successful and, due to its efficiency in raising money, has remained in some form ever since.
Through the years the tax has been applied to all manner of objects including dice and playing cards, today it is associated with the purchase of property and stocks and shares.
What is the Stamp Duty holiday?
As part of its Plan for Jobs, the government introduced a temporary stamp duty holiday for residential properties worth up to £500,000 in July 2020.
Chancellor Rishi Sunak Cut the threshold at which homebuyers in England and Northern Ireland are required to pay Stamp Duty, in the hope that the rise will stimulate the country’s housing market and the UK economy as a result.
"Right now, there is no stamp duty on transactions below £125,000,” Sunak told the Commons at the time of the announcement. "Today, I am increasing the threshold to £500,000.”
Sunak announced the cut would be a temporary one, and said the average stamp duty bill will fall by £4,500, with nearly nine out of 10 people buying a main home in 2020 paying no stamp duty at all; this represents a maximum saving of £15,000.
When does the Stamp Duty holiday end?
As it stands, the temporary cut to stamp duty will run until Wednesday 31 March 2021, after which it will revert to its original threshold of £125,000.
Could it be extended?
However, trade bodies and property firms want an extension of up to six months to be announced before Christmas.
With a number of government schemes and economic circumstances triggered by the coronavirus pandemic, experts say there has never been a better time to be a house buyer in the UK.
But property leaders are warning the industry does not have sufficient capacity to deal with the surge in demand caused by the rush to complete transactions by the stamp duty holiday’s deadline.
"Movers will apply pressure to complete transactions by 31 March in order to benefit from the changes to Stamp Duty Land Tax and to meet the Help to Buy requirements,” says the letter.
“Failure to complete those transactions could see the breakdown of chains with consumers potentially financially unable to continue with the purchase, as they would have to find funds to pay stamp duty.
“By acting now, the government can release the pressure in the system to allow transactions to complete and avoid a disorderly and distressing period for movers and businesses throughout the market.
“Any extension or gradual phasing of the SDLT would also help mitigate sharp reductions in consumer demand."