Stamp duty holiday explainer

Stamp duty holiday explainer

By Annabel Dixon

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The full stamp duty holiday on the first £500,000 of a property’s purchase price may now be over but you could still benefit from the tax cut. Our guide explains how.

Stamp duty rates have now changed as the Chancellor’s tax holiday starts to be wound down.

The threshold at which stamp duty kicks in currently stands at £250,000 until 30 September 2021.

It will then fall back to its usual level of £125,000 on 1 October 2021.

Here’s our guide with more detail on what exactly the stamp duty holiday is - and how you could still benefit from it.

First of all, what is stamp duty?

Under normal circumstances, buyers must pay stamp duty when buying a home or a piece of land worth £125,001 or more in England and Northern Ireland.

It is charged on a tiered basis (so you only pay the higher rates on the slice above any threshold – the same as income tax). 

These are the rates:

  • Up to £125,000: 0%
  • On the portion from £125,001 to £250,000: 2%
  • On the portion from £250,001 to £925,000: 5%
  • On the portion from £925,000 to £1.5m: 10%
  • Above £1.5m: 12%

There are exemptions available for first-time buyers beyond the current stamp duty holiday. They don’t have to pay stamp duty on the first £300,000, so long as the home doesn’t cost more than £500,000. 

Meanwhile, people buying additional property for £40,000 or more, such as second homes, pay an extra 3% of stamp duty on top of regular stamp duty rates. 

The surcharge effectively works as a slab tax. In other words, the 3% loading applies to the entire purchase price of the property.

There’s also been an additional 2% stamp duty levy on non-UK residents who buy property in England and Northern Ireland since April 2021.

Find out more in our guide on stamp duty and how to calculate it.

So how does the stamp duty holiday work?

The Chancellor, Rishi Sunak, unveiled a stamp duty holiday last July in a bid to boost the housing market after the first national lockdown.

He raised the threshold at which buyers start paying stamp duty with immediate effect, from £125,001 to £500,001, in England and Northern Ireland. 

It meant that nearly nine out of 10 transactions were no longer subject to stamp duty, with the average bill falling by £4,500.

These are the full stamp duty holiday rates:

  • Up to £500,000: 0%
  • On the portion from £500,001 to £925,000: 5%
  • On the portion from £925,001 to £1.5m: 10%
  • Above £1.5m: 12%

And here's our handy interactive table revealing the savings on offer under the stamp duty holiday on the first £500,000 of property. 

The stamp duty holiday was set to run until 31 March 2021. But in the Budget earlier this year, Sunak moved the deadline until the end of June 2021.

And to avoid a ‘cliff edge’ when this period ended, the threshold at which stamp duty kicks in then dropped from £500,001 to £250,001 until 30 September 2021.

The 3% stamp duty surcharge applies on top of the stamp duty holiday rates. This still results in a saving, because the 3% rate is normally applied on the first £125,000, with higher rates above that.

Similar ‘holidays’ were introduced last year in Scotland and Wales, where the property tax is different. But both have now ended.

The Scottish government increased the threshold of its Land and Buildings Transaction Tax (LBTT) from £145,000 to £250,000. 

And the Welsh government raised the threshold of its Land Transaction Tax (LTT) from £180,000 also to £250,000.

Why was the stamp duty holiday extended?

The stamp duty holiday, combined with many people reassessing their homes and lifestyles during the pandemic, prompted a jump in housing transactions.

It led to a congested sales pipeline and the home buying process taking longer than usual.

As a result, around 70,000 people who agreed sales in 2020 were in danger of missing the 31 March deadline, according to our research.

And a petition calling for the stamp duty holiday to be extended received more than 100,000 signatures, triggering a debate to be held in Parliament in February.

Can you still take advantage of the stamp duty holiday?

Yes, there’s still scope to save up to £2,500 if you complete before the end of September, when the stamp duty holiday is wound down completely.

It’s worth noting that in a normal year, it would take on average three months from a sale being agreed to completion. But given the uptick in activity over the past year, the average time for a sale to cross the line is now four months.

The good news is that there’s a number of ways to boost your chances of meeting the final deadline, from staying in close contact with your conveyancer, to buying a property via an auctioneer, such as iamsold.

As the full stamp duty holiday on the first £500,000 of a property’s purchase price drew to a close at the end of June, Zoopla calculated that over 50,000 buyers in England could have been at risk of missing out on the maximum savings due to extreme pressure on and delays to the transaction pipeline.

Gráinne Gilmore, head of research at Zoopla, explained: "The busy market is being driven by a once-in-a-generation re-assessment of home as a result of the pandemic.

"This has led hundreds of thousands of households to reflect on how and where they want to live – and they are making a move as a result, with family houses most in demand.

"This trend has been certainly boosted by the stamp duty savings on offer due to the stamp duty holiday, but levels of sales activity in recent months have remained high, with many of these buyers now only expecting the lower, tapered, stamp duty exemption of up to £2,500 because of the longer timeframe to complete a sale."

Tell me a bit about the background of stamp duty

The government introduced historic reforms to stamp duty in 2014. It saw the method of calculating the tax change - as well as the rates (Scotland followed with changes in 2015). 

This effectively cut the tax bill on homes worth up to £940,000 (which account for more than 95% of households) but cranked up the charges for more expensive properties.

In 2009, the most expensive stamp duty band was 4%. This is now 12%, rising to 17% for overseas buyers purchasing in England from April. 

This map shows stamp duty charges under normal circumstances:

How Zoopla can help you

  • Thinking of selling? Use our My Home experience to find out how much your existing property is likely to be worth.
  • Searching for a home to buy? Get ahead by registering with us to receive alerts whenever a property that meets your criteria is listed for sale. And use our handy tools to help you find exactly what you want. Take our Advanced Search tool - it allows you to discover homes with specific features, such as 'thatched roof' or 'bifold doors'. 
  • Whether you're buying or selling, speak with local estate agents to get expert market advice. And explore a wide range of properties for sale on Zoopla, from new-build homes to period properties, studio flats to spacious family homes.
  • Finally, if you need any help decoding property jargon, don't forget to check out our jargon-buster.
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