The chancellor, Kwasi Kwarteng, has confirmed a permanent stamp duty cut as part of a policy package aiming to alleviate the cost-of-living crisis currently affecting the UK.
The new policy was announced on Friday the 23rd of September in the mini-budget (opens in new tab), the first budget presented by the new chancellor appointed by PM Liz Truss. But what is stamp duty and how will the cut affect you?
What is stamp duty?
Stamp duty is a tax paid by homebuyers in England and Northern Ireland if the property value exceeds a certain amount. A separate system applies if the property is located in Scotland or Wales.
The cost of this property tax is based on the value of the property a person is buying, with more tax being paid on higher-valued properties.
Previously, the first £125,000 of a property’s value was tax free. If the price of the house was above that value, buyers were charged 2% of the property’s value above that threshold up to £250,000, so if the property was £126,000, buyers would be charged 2% of £1,000. If the value of the house was above £250,000, buyers were charged 5% on the portion between £250,001 and £925,000.
What will the stamp duty cut change?
After Friday’s announcement, the first £250,000 of a property price is now not subject to stamp duty. The portion of the property price from £250,001 to £925,000 will now incur a 5% tax, while the portion from £925,001 to £1.5 million incurs 10%, and above £1.5 million will incur 12%.
The change is permanent, rising the threshold at which buyers have to pay the duty from £125,000 to £250,000.
First time buyers have been granted a higher threshold as a result of the new policy and may be able to avoid paying any stamp duty on the first £425,000 of their property purchase – marking a rise from the previous £300,000 threshold. For purchases above the threshold, first time buyers will pay 5% on the portion from £425,001 to £625,000 but, if the property price is more than £625,000, first time buyers cannot claim the discount.
How will the stamp duty cut affect the UK public?
The stamp duty cut will benefit first-time buyers and those already in the process of moving the most, Rich Horner (opens in new tab), head of individual protection at MetLife UK, explained.
Other expert opinion believes that the cut could push home prices up as the lower tax rate results in rising demand for properties, Bloomburg UK reports, citing the stamp duty holiday introduced by the previous UK Chancellor, Rishi Sunak, that caused house price to balloon.
Expert opinion is currently mixed, as, because the policy is so fresh, its results will not be noticeable for some time. Tim Bannister (opens in new tab), Rightmove’s housing expert, noted, “The first-time buyer threshold change means we could see more first-time buyers who can afford it making a jump to a bigger home as their first move.”
Why has the UK government cut stamp duty?
The cuts to stamp duty are part of Kwarteng’s new growth plan, which aims to deliver on Prime Minister Liz Truss’s promises to slash taxes, boost the country’s economy and quash the cost-of-living crisis.
Kwarteng explains, “It [economic growth] means more jobs, higher pay, and more money to fund public services, like schools and the NHS.
“This will not happen overnight but the tax cuts and reforms I’ve announced today – the biggest package in generations – send a clear signal that growth is our priority. Cuts to stamp duty will get the housing market moving and support first-time buyers to put down roots.”
When will stamp duty be cut?
The changes announced in the mini-budget on Friday the 23rd of September came into effect immediately, meaning stamp duty has already been cut. The Guardian explains that people in the process of buying a property should benefit from the tax break and should contact their solicitor to ensure they get the discount.