How much is stamp duty? The new rates explained, who pays the tax and what the cut means for first-time buyers

Chancellor Kwasi Kwarteng has announced a cut to stamp duty as part of his mini-Budget unveiled on Friday.

The level at which homebuyers pay the tax will be doubled to £250,000, with additional support for first-time buyers.

The move is designed to stimulate the property market and help first-time buyers get a foot on the ladder, but it also risks driving up house prices.

Here is everything you need to know.

How is stamp duty being cut?

Stamp duty, also known as stamp duty land tax (SDLT), is a tax on property or land bought in England and Northern Ireland.

Scotland and Wales have their own taxes on land, which are called land and buildings transaction tax (LBTT) and the land transaction tax (LTT), respectively.

Under the new plans, no stamp duty will be paid on the first £250,000 of a property – up from the previous £125,000 threshold.

First-time buyers will not have to pay any stamp duty on property up to £425,000, up from £300,000.

The value of a property on which first-time buyers can claim relief has also increase, from £500,000 to £625,000. Previously, first-time buyers purchasing a property worth over £500,000 followed the same stamp duty rules as everyone else, meaning they still had to pay tax on values over £125,000.

The new stamp duty rates are as follows:

  • £0 – £250,000 = 0 per cent
  • £250,001 – £925,000 = 5 per cent
  • £925,000 – £1,500,000 = 10 per cent
  • £1,500,000 and over = 12 per cent

When does the change take effect?

The stamp duty cut is taking effect immediately, the Government has confirmed. This means anyone purchasing a property from today will pay stamp duty under the new thresholds.

How will it affect the housing market?

The Chancellor said the measure would take more than 200,000 buyers out of paying stamp duty altogether. He added: “Cuts to stamp duty will get the housing market moving and support first-time buyers to put down roots.”

On the face of it, cutting stamp duty is a good thing for people planning to buy houses, as it means they pay less tax on their purchase, making the home more affordable.

However, the proposition has been widely criticised by industry experts who believe cutting stamp duty will push up house prices, and therefore increase people’s mortgages.

Angus Irvine, partner and head of residential at property consultancy Rapleys, said: “Although there is a split camp on the merits of a stamp duty cut, at this point in time it seems like a short-term fix which will pump up prices in the short term like it did during Covid.

“Really the Government should be investing in building houses and part of that is unblocking the planning system. As ever with supply and demand, if you cut SDLT and increase the number of transactions, the demand will push up the prices.

“What you save in SDLT you will ultimately end up paying in house prices. The bigger issue will be increases in mortgages rates as people come out of historically low fixed rates from the past 3-5 years there are going to be a lot of households who will really struggle with the new mortgage rates.”

More from Property and Mortgages

A stamp duty holiday introduced by former chancellor Rishi Sunak during the pandemic saw the average UK house price jump by 15.5 per cent annually in July, according to the Office for National Statistics (ONS) – the biggest increase in 19 years.

Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, told the Evening Standard: “You can see why the Government is concerned about the housing market, because there’s a risk that rising mortgage rates and rising prices will dampen buyer enthusiasm. We know from recent experience that a stamp duty holiday effectively stimulates demand.

“No buyer will ever complain about a tax cut, but if the Government was to cut stamp duty it would mean ignoring the fact that the real brake on the property market is a severe shortage of supply.

“Stimulating demand without addressing supply problems would risk more buyers chasing a tiny number of properties, which would push prices up. It’s what we saw during the coronavirus-inspired stamp duty holiday.”

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