HOME buyers are expected to benefit from a stamp duty holiday as the Chancellor looks for ways to boost the economy.
It's believed that Rishi Sunak will make the announcement later today in the Commons, in a bid to inject life into the housing market during the coronavirus crisis.
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Stamp duty is a controversial tax that buyers pay when buying a piece of land or property over £125,000.
The rate then rises depending on the value and type of property – the more expensive it is, the higher the rate you have to pay.
One source told The Sun the tax-free threshold could be set at £300,000 but it may be pushed as high as £500,000.
The tax holiday is set to last for six months, although it's not clear whether it will start from today or begin later in the year.
Here's how it will affect first-time buyers and second home purchases:
How will it affect first-time buyers?
First-time buyers are already exempt from stamp duty on property worth up to £300,000 and £450,000 in London.
What is stamp duty?
STAMP duty land tax (SDLT) is a lump sum payment anyone buying a property or piece of land over a certain price has to pay.
Currently, all house-buyers in England and Northern Ireland must pay stamp duty on properties over £125,000.
The rate a buyer has to fork out varies depending on the price and type of property.
Rates are different depending on whether it is residential, a second home or buy-to-let, or whether you're a first-time buyer.
The current system in England for residential properties means:
- First-time buyers pay nothing on properties below £300,000 (and relief available on properties of up to £500,000)
- You pay nothing if the property costs below £125,000
- You pay 2 per cent if it is worth between £125,001 and £250,000
- You pay 5 per cent if between £250,001 and up to £925,000
- You pay 10 per cent if it is between £925,001 and £1.5million
- You pay 12 per cent on anything over £1.5million
For second homes or buy to let properties:
- 3 per cent on purchases up to 125,000
- 5 per cent on purchases between £125,001 and £250,000
- 8 per cent on purchases above £250,001 and £925,000
- 13 per cent on purchases above £925,001 and £1.5 million
- 15 per cent on purchases above £1.5 million
Stamp duty rates are different in Scotland and Wales.
They are then charged at a rate of 5 per cent on the portion of the value of the property between £300,000 but less than £500,000.
Assuming that the threshold is raised to £500,000, the changes will only affect those buying property worth more than £300,000 as they won't have to pay tax on the portion that's worth up to half a million pounds
Meanwhile, those in London will see the tax-free threshold increase by another £50,000.
The average house cost £248,0000 in England in March 2020, according to the Office for National Statistics (ONS).
If a first-time buyer bought a property for £500,000, they'd save £10,000 in stamp duty if the threshold increased, Peter Gettins of mortgage broker L&C Mortgages, told the Sun.
If there is a delay to the start of the scheme, first-time buyers may be inadvertently affected if homeowners further up the chain decide to hold off selling their property until the tax break kicks in.
Sellers may decide to pull their property off the market causing the chain to collapse.
It may also mean that there are fewer homes put up for sale before the holiday takes affect.
How will it affect buying a second home?
We don't yet know whether a possible stamp duty holiday will apply to Brits wanting to buy a second home.
But if it does apply, then buyers could be set to save thousands of pounds in the purchasing process.
Second homes are taxed at higher rates of stamp duty – it's 3 per cent on purchases up to £125,000, 5 per cent on the portion worth between £125,001 and £250,000 and 8 per cent on the bit worth between £250,001 and £925,000.
First home movers who bought a home for the average property price at £248,000 would save £2,460 on stamp duty if the threshold is raised.
But for those buying a second home for the average price tag would save a whopping £9,900.
There are a number of free calculators online that you can use to work out how much stamp duty you currently have to pay, such as with the Money Advice Service and Gov.uk.
How will it help the economy?
The Treasury hopes that the possible stamp duty holiday will reboot the property market after it effectively froze during lockdown with viewings, sales and moves suspended.
Experts say that a stamp duty holiday will encourage more home owners to move, helping to kickstart economic activity in other sectors.
Paul Johnson, director of the Institute for Fiscal Studies, told the Times there was a "good chance" that the policy would benefit the economy in the short term.
He said: "The housing market is very thin… Anything which gets it moving would potentially help".
This was echoed by Tom Bill, head of UK residential research at estate agency Knight Frank, who told Financial Reporter: "A stamp duty holiday would provide welcome financial relief for millions of people, including first-time buyers."
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