What Do Liz Truss's Stamp Duty Cuts Mean For You?
Updated: Apr 6, 2023
Liz Truss and chancellor Kwasi Kwarteng have announced a cut to the "highly destructive" stamp duty for everyone except millionaires as part of the mini-budget announced today (Friday 23rd September). This follows Ms Truss's pledge for a “comprehensive tax reform”, made during her visit to New York for the United Nations General Assembly.
Let’s take a look at how these changes can affect you….
What is Stamp Duty?
Stamp Duty Land Tax (SDLT) is a government tax that is charged on property purchases. The rate of stamp duty you pay depends on the type of property, and whether it is residential or non-residential, they are also dependent on the price of the property. There are different rates if you are buying a second home or a buy-to-let property. In most cases, first-time buyers get a discount.
How much Has Stamp Duty been cut?
Up until now, first-time buyers would not have to pay stamp duty on properties worth up to £300,000 but the stamp duty cut means that first-time buyers will now no longer have to pay stamp duty up to £425,000. The savings in stamp duty are now available for properties up to £625,000. The threshold for when the tax is due for buyers that are already on the property ladder has also risen - doubling from £125,000 to £250,000.
What does a cut in Stamp Duty mean for me?
For a First Time Buyer buying property under £300,000 there will be no difference in Stamp Duty charges. For larger properties there are significant savings, a property purchase price of £500,000 could see savings of £6250. The largest savings can be found at the top end of the cut, i.e purchasing at £625,000, the savings could be as much as £11,250.
The savings for homemovers are £2500 in stamp duty according to the government stamp duty calculator.
What is the Stamp Duty Cut Trying to Achieve?
The changes to stamp duty are amongst multiple other measures confirmed by Liz Truss in Friday's mini-budget as her conservative government seeks to drive economic growth. On a visit to New York earlier this week, the Prime Minister told reporters that she would consider tax cuts “across the board” and there was "no doubt" in her mind this would help to grow the economy.
Some financial specialists have warned the government that cuts to stamp duty will make things harder for first-time buyers and will result in a rise in inflation in the property market, as house prices rise at the fastest rate for almost 20 years. Economists and property experts have said that the introduction of these measures to further stoke an already competitive housing market would only result in it benefiting wealthier individuals and risks pricing out first-time buyers.
The chief executive of the TaxPayers' Alliance group (John O’Connell), whose ideas were a central part of Ms Truss's successful Tory leadership campaign, has said that "Stamp duty is a highly destructive tax, harming economic growth by impacting decisions like downsizing or moving for a new job.”
Cutting stamp duty could help to alleviate any potential slowdown in the housing market that could come around as a result of the Bank of England raising interest rates, with the cost of borrowing expected to hit 4.5% within the next year, adding to the financial squeeze felt by homebuyers. Despite this, analysts have said that without further financial reforms, and the addition of greater efforts to boost housing supply, then these new stamp duty measures would only add to inflation while doing little to benefit those struggling to get on the housing ladder.
Property market analyst, Neal Hudson said “As borrowing gets more expensive, the market was already looking like it would shift towards higher-income, wealthier borrowers and away from first-time buyers”. He went on to explain that these cuts to stamp duty could make it harder for first-time buyers as it will make it more affordable for property investors and second-home buyers, meaning that the property market would become more competitive.
Some financial analysts have also warned that a cut in stamp duty and a rise in the competitiveness of the housing market may cause property prices to rise at a higher rate than expected. This may be good for those looking to sell as you could see a higher return on investment on your property. However, this will mean that the affordability for many will be reduced, making it harder for people to purchase the homes they would have previously been able to afford.
Summary
To summarise a cut in stamp duty could result in a tighter squeeze on homebuyers' wallets, however, with other help being announced for the economy we will have to see how the housing market will truly be affected. The cut is likely to last until March 2025.
Want to know more about how stamp duty can affect you?
We will happily recommend you to a tax professional who can look at your individual situation. Feel free to call us on 01702 864848.
