Will the reduction to stamp duty rates be extended?

In an effort to reinvigorate the housing market in the wake of the Covid-19 pandemic, the Chancellor, Rishi Sunak, announced a temporary reduction to stamp duty land tax rates in July 2020, whereby the property threshold for stamp duty was raised to £500,000 for main residence properties bought from 8 July 2020 to 31 March 2021 inclusive, saving buyers up to £15,000 and making many properties exempt from the tax. For properties priced over £500,000, buyers have only been taxed on any amount above £500,000 during this period.

Since this incentive was introduced, there has been a significant increase in both property transactions and, concurrently, in house prices. Traditionally a quieter month for sales, even November 2020 has seen a rise in house price growth to 6.5%, which is the highest rate since January 2015. Whilst this may have initially been due in part to a backlog of properties and new buyers who had been unable to proceed during the first lockdown period, we are certainly still seeing the impact of buyers rushing to complete their property purchases before the March 2021 deadline for stamp duty reductions.

Currently, the Government remains firm on the deadline of 31 March 2021. When questioned on the possibility of an extension at the end of October, Housing Minister Chris Pincher noted that “The government does not plan to extend this relief and will continue to monitor the property market.” This means that stamp duty rates are due to return to the pre-relief rates below from 1 April 2021.

Price of property Stamp duty payable
Up to £125,000 (or £150,000 for non-residential properties) 0%
The portion from £125,001 to £250,000 2%
The portion from £250,001 to £925,000 5%
The portion from £925,001 to £1.5 million 10%
Anything above £1.5 million 12%

First-time buyers will also continue to receive a discounted rate if they, and anyone else they buy with, are first-time buyers and the purchase price is £500,000 or less. Shared ownership, leasehold and buy to let properties will also be subject to stamp duty as normal. 

However, at the beginning of November 2020, a group of industry insiders including 14 trade bodies made up of estate agency, conveyancing, surveying and removals associations wrote a joint letter to the Chancellor requesting a 6-month extension to the stamp duty deadline. The group asked for the extension to ease the current burden on the sector and avoid the negative impact on the property market and wider economy of thousands of property sales not meeting the deadline and potentially falling through altogether. They have asked for an announcement on the matter to be made before Christmas. 

To put the current state of the property market into context, the property portal Zoopla has reported a conservative estimate of around 140,000 on-going property transactions, which is twice the usual number for this time of year, with the vast majority seeking a completion date prior to 31 March 2020. But whilst Rightmove is still reporting sales prices at an all-time high, this doesn’t necessarily give an accurate gauge of what buyers are actually paying.

Given that we expect to see the economic impact of Covid-19, the end of the job retention bonus and job support scheme plus the impending Brexit fall out in the not too distant future, and with unemployment and redundancy figures at an all-time high, predictions of a recession could become an all too familiar reality. Indeed, a decrease in house prices of anywhere from 5% and 14% in 2021 has been predicted whilst the labour market recovers and the uncertainty around the ongoing COVID-19 pandemic begins to subside (we hope). For those buyers who are overpaying now to secure a house in a competitive rush to beat the stamp duty deadline, this could mean being left with a property whose value decreases in the next 6 to 12 months, or worse, leaves them in a position of negative equity.

But is a stamp duty extension likely? Given the Government’s volte-face on an extension to the furlough scheme it may be possible that they take on board recent calls for an extension to the stamp duty cut, but there has been no indication of this to date and some keen developers have even taken the matter into their own hands to offer subsidised stamp duty until October 2021 to incentivise cautious buyers going forward.

However, potential buyers are advised not rush into buying a home now based solely on stamp duty incentives or a currently buoyant property market at the risk of losing out in the long term with a property which has decreased in value or with unfavourable interest rates from cautious lenders.

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