It is no secret that the UK residential property market is currently a hive of activity despite the Covid-19 restrictions which are still in place.
The property market surged following the government temporarily cutting stamp duty land tax (SDLT) during lock down, allowing buyers to save up to £15,000 in stamp duty from last July as part of the government’s strategy to maintain confidence in the housing market in the pandemic. This encouraged the volume of houses being placed on the market to rise significantly.
In England, the level at which stamp duty was to be paid (the threshold) was raised from £125,000 to £500,000 in July 2020. The initial stamp duty saving was to end on 31 March 2021 – many transactions completed before this date. HMRC shows that 190,980 sales went through in March, almost double the number recorded a year earlier and 32% more than in February.
The stamp duty saving extension may have been greeted with relief by many, but possibly not all.; the current SDLT ‘holiday’ under which the nil band for residential properties increased from £125,000 to £500,000 is now being withdrawn in a staged way. After an initial extension to 30 June 2021, the relief will not end dramatically, but rather reduce to £250,000, allowing buyers in England to save up to £7,000, until 1 October 2021 when the nil rate band will return to £125,000.
In Wales, things are a little different and only the first £250,000 of the price paid for a residential property in Wales will continue to be free from Welsh stamp duty (land transaction tax) provided that the transaction completes before 1 July 2021.
The market reacted by a further increase in new properties coming onto the market with several offers on each property within the first week of them being put on the market, bringing with that activity a fear that gazumping would return.
Further pressure was put on to those working in the sector in an eagerness to get transactions completed in order to claim the saving, with many solicitors now refusing to take on new work owing to the increased volume of cases being received.
House price growth?
Many predicted that house price growth could slow down once the furlough schemes and stamp duty cuts had come to an end, but as both of these were extended, these predictions have changed. Savills now thinks that house prices may rise by 4% in the remainder of the year.
Future opportunities to mitigate stamp duty
So how can buyers mitigate the cost of these changes, as the holiday comes to its end? Our head of tax, tax barrister Sarah Woodall has said that evidence suggests that demand for houses in rural locations has significantly increased as a consequence of the pandemic, as employers offer greater flexibility in working patterns than ever before.
This means that we are seeing increasing numbers of city dwellers buying larger, rural properties and on occasions overlooking the opportunity to claim multiple dwellings relief (MDR), for example, if the home includes an annex. The problem is that MDR is something many people simply have not had to consider before when buying city properties, and MDR can potentially halve stamp duty payable. Expressed simply, a transaction is a multiple dwelling transaction if:
- It consists of an interest in at least two dwellings; or
- an interest in at least two dwellings, and other property.
A building, or part of a building, counts as a dwelling if:
- used or suitable for use as a single dwelling; or
- in the process of being constructed or adapted for such use.
Suitability is based on actual features at completion. The law is not straightforward in this area and it is sensible to seek expert advice if buyers are in any way unsure. The savings can be very significant.
What has this done for the economy and the market?
Whilst solicitors, and indeed estate agents, will need a holiday when all this settles down, they are delighted not to be looking for a change of career; at the start of lockdown, many were concerned the property market would fall off a cliff.
But when the government announced that the great British public could start moving house again, together with the benefit of a potentially significant saving on stamp duty, the market escalated, providing the economy with a much-needed cash injection.
If you’re buying your first home
To give a practical example for England, if you are buying your first home from 1 July 2021, this means you’ll pay:
- no SDLT up to £300,000
- 5% SDLT on the portion from £300,001 to £500,000
You’re eligible if you and anyone else you’re buying with are first-time buyers in England (this relief is not available in Wales). If the price is over £500,000, you follow the rules for people who’ve bought a home before.