The clock is ticking for prospective homeowners to complete the purchase of their new homes before the government’s changes to Stamp Duty come into force.
As a key aspect of the housing market, such changes can have a profound impact on prospective buyers, current homeowners, and the housing market as a whole. Thrings Senior Associate Emma Page breaks down the upcoming changes to discuss what they mean for house owners, and some advice on how to navigate the new landscape.
What is Stamp Duty?
Stamp Duty Land Tax (SDLT) is the tax paid on property purchases in England and Northern Ireland. The amount you pay depends on the property price and the status of the buyer, including whether the property is a primary residence or a second home.
The tax has long been a key source of revenue for the UK government and, in the past, has been subject to periodic reforms aimed at stimulating the housing market or raising revenue.
In the Labour government’s Autumn Budget last year, it was announced that the threshold (the point at which you pay the tax levied on property purchases) would be reduced, as would the relief available to first time buyers, with changes coming into effect on 1 April 2025.
What are the changes to SDLT and what do they mean for homeowners and potential buyers?
Under the current rates you will not pay any SDLT on the first £250,000 of your purchase price, but following the changes the nil rate threshold is lowered to £125,000 with a tapered 2% rate on the next £125,000 and a further 5% rate on the next £675,000.
This means for a property being purchased at an average price of £290,000, under the changed rates, the buyer would pay £4,500 in SDLT (nothing for the first £125,000, £2,500 for the next £125,000 and £2,000 for the final £40,000).
First Time Buyers purchasing a main residence up to the value of £625,000 are not currently liable to pay SDLT on the first £425,000 of the purchase price, with SDLT then payable at 5% on the remainder of the purchase price.
From April, SDLT will be payable on the value over the first £300,000, meaning that a property being purchased as a main residence by a qualifying first-time buyer for £425,000 will go from paying no SDLT to £6,250 of liability once things change. This could have a particular impact in areas with higher average property prices, such as London and the South East.
Top tips for homeowners and buyers
With these changes likely to add pressure to transactions to ensure a completion date before April, it is important homeowners and buyers take steps to ensure they are prepared:
Take advantage of the first-time buyer relief before 31 March: If you are a first-time buyer or looking to purchase your first home, the increased SDLT thresholds can make a substantial difference. Ensure you understand how much you could save. If you are close to the thresholds mentioned, it’s important to consider your options carefully to understand your affordability if you are not able to complete your transaction before 31 March 2025.
Factor SDLT into your budget: If you are looking to move house, now is a good time to reassess your budget. The SDLT changes could increase your costs and completion before 31 March cannot be guaranteed until you have formally exchanged contracts. Keep in mind that other costs such as legal fees, surveys, and moving expenses still need to be factored into your calculations.
Investment considerations: For those buying additional homes or investing in the buy-to-let market, be mindful that the surcharge on SDLT is now 5%. As the housing market and tax policies evolve, it's essential to keep track of any further adjustments that may impact the profitability of your investments.
Plan ahead: Property markets can be unpredictable, and further changes to SDLT and other housing policies may occur. Whether you are buying or selling, it’s crucial to stay informed and plan your moves carefully. Consulting with a conveyancing lawyer or tax professional can help you navigate the financial implications of the changes and ensure you're making the best decisions for your situation.
Whether you are a first-time buyer, a current homeowner looking to move, or an investor, understanding how these changes affect you is crucial for making informed decisions. Keep in mind the evolving housing market and regional differences and consider seeking expert advice to ensure you navigate these changes in the most beneficial way.
Thrings’ Residential Property lawyers are skilled at navigating the rarely straightforward processes that are buying, selling or renting homes and offer professional, open and tailored advice that gives you confidence in making the right decision for you. To find out more about how they can bring clarity to your dealing with the property market, please get in contact.
