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Stamp duty holiday - how much could property investors save?

Posted on 2020-08-20

On July 8, as part of his Summer Statement, Chancellor Rishi Sunak announced a stamp duty holiday with the aim of kickstarting the property market post-lockdown.

The tax cut means that purchasers of properties in England and Northern Ireland will not pay stamp duty on the first £500,000 until March 31 2021.

The policy is expected to provide stamp duty exemption for 90% of main property buyers, but there will also be significant savings available for landlords looking to expand their portfolios.

Research suggests the average buy-to-let landlord will save around £2,000 when buying a property thanks to the stamp duty holiday, but depending on the location in which you purchase, savings could be much higher.

Below, we take a closer look at how the stamp duty holiday works for landlords and some examples of savings that could be made over the coming months.

Will the stamp duty surcharge still apply?

Upon increasing the stamp duty threshold from £125,000 to £500,000, the government also confirmed that the controversial 3% stamp duty surcharge for buy-to-let investors and purchasers of second homes would still apply during the stamp duty holiday period.

Since April 2016, anyone buying a second home or property to let has had to pay an additional 3% in stamp duty on top of the existing rates for all purchasers.

Between now and March 31 2021, landlords will still have to pay some stamp duty in the form of the 3% surcharge, but will benefit from not having to pay traditional stamp duty on the first £500,000 of their purchase.

For example, any second property purchased for less than £500,000 will have a total stamp duty bill of 3%. Those costing over £500,000 will be required to pay the normal stamp duty rate over the threshold, plus the 3% stamp duty surcharge.

This means stamp duty rates for investors will sit at:

• 3% on the portion of the property costing up to £500,000;
• 8% on the portion of the property costing £500,000 to £925,000;
• 13% on the portion costing £925,000 to £1.5 million;
• and 15% on anything over £1.5 million.

Examples - here's how much you could save...

If you purchase a second property for £300,000 before March 31 next year, your stamp duty bill will be £9,000, down from £14,000. This is because you will only be required to pay the 3% stamp duty surcharge and will be exempt from the traditional stamp duty charges up to £500,000.

You will benefit from a £5,000 saving as before the stamp duty holiday, you would have been required to:

• pay 3% on the first £125,000 of the purchase price;
• 5% on the next £125,000;
• and 8% on the final £50,000.

For a more expensive property priced at £575,000, your stamp duty bill will currently be £21,000, calculated at an effective rate of 3.7% - a saving of £15,000. You will pay 3% tax on the first £500,000 and then 8% on the remaining £75,000.

Previously, your stamp duty bill would have been £36,000. This would have been made up by paying:

• 3% on the first £125,000;
• 5% on the next £250,000;
• and 8% on the remaining £325,000.

You can work out how much your specific stamp duty bill would cost using this handy stamp duty calculator.

Positive news for buy-to-let landlords

Despite its significant growth, the buy-to-let sector has had to contend with a number of challenges in recent years, from the aforementioned stamp duty surcharge to new legislation such as the Tenant Fees Act.

In recent months, there has been the added impact of the Covid-19 pandemic to contend with as many landlords have experienced rising rent arrears or felt it necessary to request a buy-to-let mortgage payment holiday.

Therefore, news of a stamp duty holiday provides a significant boost for landlords, encouraging portfolio expansion and creating more rental housing stock for the nation's tenants.

Research from both Paragon and Mortgages for Business suggests that many landlords (up to 30%) have recently remortgaged to raise funds for property purchases.

Thanks to the stamp duty holiday, these investors may be able to purchase more expensive properties, or be left with more savings to renovate or put towards further expansion.

It's therefore likely that there will be a significant rise in investment purchases between now and the end of next March, similar to the surge experienced ahead of the introduction of the stamp duty surcharge in 2016.

Meanwhile, if you're looking to sell a property before next March, you could also benefit from the stamp duty holiday.

It's been widely reported that the Chancellor's new policy has encouraged many property buyers to spring into action, with Rightmove recording record traffic and Nationwide reporting a huge surge in visitors to its mortgage affordability tools.

In a market with high demand, sellers have a better chance of securing a quick transaction at the best possible price. You are likely to generate more interest, which can translate into a higher number of viewings and ultimately offers.

As the property industry continues to adapt to the knock-on effects of the pandemic, it's hoped that measures like the stamp duty holiday will provide a helping hand to landlords and contribute towards the market returning to the impressive levels of activity witnessed in January and February 2020.

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