New Government, new era for stamp duty? We take a look at the Prime Minister’s pledges to overhaul the property tax.
Increase the stamp duty threshold to £500,000
While campaigning to be leader of the Conservative Party, Johnson announced he was considering increasing the threshold at which stamp duty kicks in to £500,000 from its current level of £125,000.
The move, when combined with the properties that are already not liable for stamp duty, would mean an estimated 770,000 homebuyers would not pay the tax each year, according to think tank Onward.
Winners: Anyone buying a home for between £125,000 and £499,999, with those purchasing at the top end of this range saving nearly £15,000 compared with the current system.
Losers: HM Revenue & Customs. The change could reduce the stamp duty take by around £3.3bn a year, according to Onward.
Reduce the top stamp duty rate to 7% from 12%
The Prime Minister also suggested he could reduce the top rate of stamp duty from 12% to 7%. The 12% rate, which kicks in on homes sold for more than £1.5m, was increased by the then-chancellor George Osborne in 2014. But it has been widely blamed for leading to a sharp fall in transactions at the top end of the market.
Winners: People buying a home costing more than £1.5m who will save considerable sums if the change goes ahead.
Losers: HMRC would see a further fall in revenues, although some of this drop could be offset if the change leads to more high-end homes changing hands.
Sellers pay stamp duty instead of buyers
Perhaps the most radical change Johnson is understood to be considering is changing who is liable for stamp duty so that the seller rather than the buyer pays the tax.
Such a move, which was not announced when he was on the campaign trail, would ease the burden on people trading up the property ladder, while those selling would be able to tap into their equity to pay the stamp duty they owed.
But the change could prove unpopular, as it would mean existing homeowners effectively having to pay the tax twice, having already paid it when they purchased their home.
Winners: First-time buyers purchasing a home for more than £300,000, people trading up the property ladder.
Losers: Those downsizing as they would face higher stamp duty bills on the home they are selling, rather than the one they are buying.
One aspect of stamp duty that Johnson has not been reported to be considering reforming is the 3% surcharge for buy-to-let investors and those purchasing a second home.
This additional tax has contributed, along with other tax and regulatory changes, to a fall in landlords entering the sector and those expanding their portfolios. It has, however, helped first-time buyers through reducing competition for homes at the bottom-end of the housing ladder.
It is also worth noting that there has not been an official announcement or timeline for the reforms published since Johnson became leader.
This uncertainty could lead to temporary distortions in the market if people delay purchases in the hope of paying less stamp duty if they wait.
Top 3 takeaways
- The Prime Minister has promised to increase the threshold at which stamp duty kicks in to £500,000 from its current level of £125,000
- Johnson is also expected to reduce the top rate of stamp duty from 12% to 7%.
- Under the reforms, the tax could be paid by the seller rather than the buyer
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