The potential Stamp Duty Land Tax “SDLT” savings have been at the forefront of the minds of prospective purchasers, property lawyers and many others alike as we approach the anticipated end to the SDLT holiday on 31 March 2021.
However, the Right Honourable Rishi Sunak has announced the extension of the SDLT holiday until 30 June 2021. He also announced a revised SDLT position for the period from 01 July 2021 to 30 September 2021, whereby SDLT will not be payable on the first £250,000 of a purchase price.
In his ‘A Plan for Jobs’ speech in July 2020, Rishi Sunak highlighted the need to instil confidence in people to ‘buy, sell, renovate, move and improve’. The speech set out elements of the country’s response to the Coronavirus pandemic, including a temporary cut to the SDLT payable on the first £500,000 on a purchase of residential property.
What is not completely clear though, is whether these measures were needed. The measures were introduced to ‘catalyse the housing market’ but prior to Coronavirus, residential property transactions completed in England with a value of £40,000 or above were already on the rise increasing from around 68,000 in January 2018 to over 97,000 in November 2018. Did the measures over-stimulate the market?
These temporary measures have contributed to an increase in house moves – provisional government statistics (though should not be read in isolation) show that there were over 100,000 residential property transactions completed in England with a value of £40,000 or above in each of the months of October, November and December 2020 compared to around 59,000 in June 2020 prior to the announcement of the tax holiday. Mortgage rates are at an all-time low and Office for National Statistics reported that UK average house prices increased by 8.5% over the year to December 2020 at a high of £252,000.
The opportunity for many to purchase without paying SDLT, and potential reductions for those purchasing property over £500,000 may also have stimulated other areas of the market. Purchasers have been able to use the money saved on SDLT to renovate their homes, boosting work for tradespeople too. Interest in properties offering outside space may have also experienced a spike in interest, as a consequence of the pandemic and a re-assessment of what we need from our living space.
The holiday has however, led to a reduction in receipts from SDLT, which clearly is a valuable source of income for the Treasury. Interestingly, Coventry Building Society analysis indicates that receipts between October 2020 and January 2021 are actually at 82% of the levels in the previous year in spite of the tax holiday. It seems that the influx of additional purchasers who may not have bought had it not been for the holiday, may have offset to some degree the income from SDLT which the HMRC has missed out on due to the tax break.
In the short term, the extension may help to avoid multiple failed transactions, encourage those contemplating moving to do so, driving house prices to continue to rise. However, the policy may merely continue to over-stimulate the market, creating a sense of panic and a rush to beat the ticking time clock to complete before the cliff edge at the end of June 2021. Unfortunately, there will always be some purchasers who ‘just miss out’ on the benefit of a tax holiday.
While the Chancellor has also introduced a £250,000 threshold before SDLT becomes payable for the period from 1 July 2021 to 30 September 2021, in some ways this may be seen as creating two smaller ‘cliff edges’, both at the end of June 2021 and again in September 2021.
Instead, what may be required is an overhaul or revision to the SDLT regime to make it largely more attractive, workable and appealing to purchasers in the long term rather than a continued tax break.
Such a revision to the SDLT policy, perhaps a long-term compromise between the threshold of £125,000 and the current threshold at £500,000, would still encourage people to buy and sell, while also providing some degree of certainty rather than cliff edge deadline(s) and associated uncertainty experienced under the current tax break.
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This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
