The chancellor, Kwasi Kwarteng, confirmed the permanent reduction in stamp duty, with no tax being paid on properties worth up to £250,000.
Kwarteng announced the policy in a mini-budget on Friday, almost a year after the last stamp duty holiday ended. It also raised the threshold for first-time buyers to £425,000. We explain the changes in full here.
What is stamp duty and how does it change?
Stamp duty is a tax that home buyers in England and Northern Ireland pay, based on the value of the property they buy. The government has announced a permanent change to the way the tax works, with the threshold at which buyers must pay duty rising from £125,000 to £250,000.
Previously, the first £125,000 of a property’s value was tax-free. Buyers were then charged 2% of the property value above that limit up to £250,000 and 5% of the portion between £250,001 and £925,000.
Under the new system, the first £250,000 of a property’s value will be exempt and buyers will pay 5% of the home’s value from £250,001. The portion between £925,001 and £1.5 million will continue to be taxed at 10%, and any property worth more than that will be subject to stamp duty rates of 12%.
The level at which first-time buyers will have to pay stamp duty will rise from £300,000 to £425,000 in a move to boost home ownership. Under the plans, first-time buyer relief will apply to properties worth up to £625,000, compared to the current £500,000.
What are the rules in Scotland and Wales?
A similar tax is paid in Scotland and Wales, but the rules and thresholds are different. In Scotland it is called Land and Buildings Transaction Tax and is not paid on the first £145,000 of a property’s value.
Meanwhile, in Wales, the fee is called land transaction tax, which is paid on properties over £180,000. As the tax is devolved, the Scottish and Welsh governments will receive funding to allocate “as they see fit”, the Treasury said today.
Scotland and Wales introduced their own tax breaks when the 2020 stamp duty holiday in England and Northern Ireland was announced.
I’m in the process of buying a property – what does it mean for me?
People looking to buy a property should take advantage of the tax relief that comes into effect on Friday. Check with your attorney to make sure you get the discount.
What do the experts say about the changes?
Reactions from property experts have been mixed, with some saying it will ease cost pressures on buyers in the short term, while warning it will cause house prices to rise.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “The horrendous cost of buying a home just got cheaper – at least for now.
“Even if the change convinces more people to buy, a lack of buyers is not the biggest problem facing the property market. The real brake on the property market is a severe lack of supply, because the average agent only has 36 properties on the books.”
However, Tim Bannister, Rightmove’s housing specialist, said that while it could lead to some “non-seasonal price rises in the coming months”, the permanent change could mean demand growth is slower than the temporary cut in 2020. “Additionally, shoppers could save up to £15,000 during the temporary stamp holiday, while the savings are lower with this change,” he said.
“The change to the first-time buyer threshold means we could see more first-time buyers who can afford to make the leap to a bigger home as a first move.”