Temporary Stamp Duty relief set to expire

Whilst much focus has been on the recent budget, it seems an important tax change has been overlooked. The Temporary Stamp Duty relief introduced in 2022 to help boost the housing market, is set to expire on 31 March, setting a hard deadline for homebuyers on potentially significant tax savings.

Here we explain what this relief is, and whether prospective homebuyers can do anything to ensure they’re not liable for higher tax bills.

What is the relief?

Stamp Duty Land Tax (SDLT) is the principal tax paid by homebuyers when purchasing residential property in England and Northern Ireland*.

SDLT is currently subject to a temporary relief. This was initially a permanent change made by the Government, but it was subsequently made temporary thanks to budgetary and economic pressures on the Government’s spending.

The changes to Stamp Duty Land Tax (SDLT) provide significant relief to property buyers by increasing the thresholds at which tax becomes payable.

For all residential property purchases:

1. The nil-rate band (the portion of the property's price on which no stamp duty is paid) was temporarily raised from £125,000 to £250,000.
2. This means that for properties valued up to £250,000, no stamp duty will be due. For properties over this value, stamp duty will only apply to the portion of the purchase price above £250,000.

Example:
If you're buying a property worth £275,000, stamp duty will only apply to the £25,000 over the threshold, resulting in a lower overall tax bill.

For first-time buyers:

1. The nil-rate band has increased from £300,000 to £425,000 on properties worth up to £625,000.
2. This means that first-time buyers purchasing a property valued up to £425,000 will pay no stamp duty. If the property value is between £425,000 and £625,000, they will only pay stamp duty on the portion above £425,000.

Example:
A first-time buyer purchasing a property worth £500,000 will pay stamp duty on £75,000 (the amount over £425,000), again significantly reducing their tax burden.

When does it expire?

The measure came into force on 23 September 2022, as announced by the then Chancellor Kwasi Kwarteng in his now infamous ‘mini budget’. It was then made temporary by his replacement, Jeremy Hunt, when he became chancellor.

Hunt set an expiry date of 31 March 2025, giving prospective homebuyers less than six months from now to complete home purchases and take advantage of the relief.

SDLT can be a major cost for a homebuyer. The standard rates mean someone buying a property worth £350,000 will be liable to pay £7,500 in SDLT, where they would have only paid £5,000 under the relief.

Stamp duty comparison

Current Stamp Duty relief is currently set at:

Up to £250,000 – Zero

The next £675,000 (the portion from £250,001 to £925,000) – 5%

The next £575,000 (the portion from £925,001 to £1,5 million) – 10%

The remaining amount (the portion above £1.5 million) – 12%

Stamp Duty relief after 31 March 2025:

Up to £125,000 – Zero

The next £125,000 (the portion from £125,001 to £250,000) – 2%

The next £675,000 (the portion from £250,001 to £925,000) – 5%

The next £575,000 (the portion from £925,001 to £1,5 million) – 10%

The remaining amount (the portion above £1.5 million) – 12%

Example: For a home priced at £350,000, Stamp Duty is £5,000 before 31 March 2025, rising to £7,500 after, resulting in a £2,500 increase.

What should you do next?

For anyone in the process of buying a home, this does start to set some deadlines where failing to complete in time can cost you more.

It is also worth noting that as the deadline gets closer there will likely be a flurry of homebuyers attempting to beat the 31 March, which could overwhelm conveyancers with people trying to spare themselves an extra tax bill!

That being said, if you’re not imminently looking to buy a new home, you’re better off making a long-term plan to ensure you can meet any purchase liabilities, instead of making a hasty choice just to get ahead of tax changes.

You can calculate your current SDLT liability using the Government’s own calculator. It is worth bearing in mind, however, that currently if you put a date in after the expiry of the relief, it does not show you what the reverted liability would be.

*The rules are different in Wales and Scotland where the equivalent taxes are fully devolved. We won’t be covering either of these in today’s article as they are not subject to a temporary relief.