The UK government, previously led by Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng and now guided by Prime Minister Rishi Sunak and Chancellor of the Exchequer Jeremy Hunt, cut stamp duty permanently, as outlined by its controversial mini-budget or “fiscal event”.
However, the cut may instead have adverse effects.
What is stamp duty and how does it work?
However, if you are an eligible first-time buyer, there is no stamp duty on properties that cost up to £425,000, as well as a discounted rate on properties up to £625,000, as explained by GOV.UK.
The rates change according to the type of property. HM Revenue and Customs Stamp Duty Land Tax (SDLT) Calculator can be used to create an approximate estimate of how much tax the buyer will have to pay.
The buyer must send a stamp duty land tax (SDLT) return to HMRC and pay the tax within 14 days of purchase completion. However, if a solicitor or agent is involved, they may pay the tax on their client’s behalf and then add the difference to their fees.
Does cutting stamp duty lower house prices?
Kwarteng announced at the end of September that stamp duty land tax was to be cut with immediate effect. This means that future house buyers in England could potentially save thousands of pounds.
Anyone who isn’t a first-time buyer and lives in England is exempt from paying SDLT on a property worth £250,000 or less, while first-time buyers are exempt from paying SDLT when purchasing a house up to the value of £425,000. The chancellor, furthermore, stated that this would help over 200,000 people to get into the housing market.
In addition, a 5% rate is payable on any portion of the property value between £425,001 and £625,000. There is no stamp duty relief for homes that go beyond that price point for first-time buyers.
However, many experts have deemed this cut irresponsible and warned that, instead of cutting house prices, it could mean the opposite. The ONS reports that the average house price in England is equivalent to 8.7 times the average annual disposable income.
Jonathan Rolande of the National Association of Property Buyers told the Express: “This budget with giveaways to put more money in people’s pockets and cutting the cost of buying a property means the market is set to hold steady, perhaps even continue its seemingly never-ending upward climb.
“Those hoping to take their first step onto the ladder soon, may well just have seen it pulled up even further out of reach.”
Anil Mistry, director and mortgage broker at RNR Mortgage Solutions, told This is Money: “On the face of it, this looks like a good move. However, if this means that demand increases, house prices increase. Then the extra money paid for the house price will be more than the actual saving in the stamp duty. It will also mean more deposit being put down and/or a higher mortgage, which means more interest in the longer term.”
Not all experts believe that stamp duty being cut is a harmful initiative. Dominic Agace at Winkworth told Country Life: “Some big and welcome changes [were] initiated with a long overdue reduction of the extremely negative stamp duty, which hopefully now will allow a better-functioning housing ladder. It is vital we get new buyers on the ladder.”
Even if the cuts will help buyers and people who would like to downsize their property, it is still challenging for most people to get onto the housing ladder. A cut in stamp duty does not mean that this saving won’t be replaced by further expenses in interest rates and house prices. However, this stamp duty cut is not temporary, so buyers do not need to rush or panic to fall under the criteria by a hypothetical cut-off date.
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