Chancellor Kwasi Kwarteng has announced a stamp duty cut in his mini-budget – and it’s worth clueing up on if you’re hoping to move house in the near feature.
Those buying a home between the value of £250,000 and £925,000 (the majority of home buyers in England) can expect to save £2,500 on stamp duty compared to previous prices.
A tax break may seem like welcome news to home buyers, but property experts have warned it could cause chaos in the housing market longer term, as we saw following the pandemic stamp duty holiday of 2021.
The latest stamp duty cut, which is effective immediately, lowers the threshold where buyers will have to start paying stamp duty. Kwarteng called it a “permanent cut to stamp duty, effective from today.”
Under the previous system, there was no stamp duty to pay on the first £125,000 of a property’s value. Under Kwarteng’s plan, the threshold doubles, meaning stamp duty starts on properties over the value of £250,000 for those who are not first-time buyers.
However, the rates remain the same, meaning there’s a maximum saving of £2,500 to be had for those who aren’t first-time buyers.
The new system also increases the first-time buyer threshold. “First time buyers currently pay no stamp duty on the first £300,000. We are increasing that threshold to £425,000,” Kwarteng said.
The chancellor claimed the stamp duty cut will “help families aspiring to own their own home”.
What are the new stamp duty rates?
The stamp duty rates are now:
0%: £0 - £250,000 (£425,000 for first time buyers)
5%: £250,000 - £925,000
10%: £925,000 - £1,500,000
12%: £1,500,000+
How much money can you save on stamp duty?
The property advice website HomeOwners Alliance has a stamp duty calculator, which allows you to enter the value of the property you’re hoping to purchase and check the associated stamp duty.
Previously, home buyers in England were exempt from paying stamp duty on the first £125,000 on a property’s vale (the rates vary across the UK).
This meant that, prior to the announcement, you’d pay the following stamp duty if it was the only residential property you owned (you’d typically pay 3% on top of these rates if you owned another residential property):
Value £250,000: Previously £2,500 stamp duty. Now £0
Value £350,000: Previously £7,500 stamp duty. Now £5,000 (first-time buyers, £0)
Value £450,000: Previously £12,500 stamp duty. Now £10,000 (first-time buyers, £1,500)
Value £550,000: Previously £17,500 stamp duty. Now £15,000 (first-time buyers £6,250)
Value: £650,000: Previously £22,500 stamp duty. Now £20,000 (first-time buyers £11,250)
But it’s not that simple...
Though you’ll save on stamp duty, Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, said cuts may risk “doing more harm than good”.
Ahead of the budget announcement, which was anticipated after a tip off in The Times, Coles said that stimulating housing market demand could push house prices up further, at a time when the supply of available homes is already tight.
Borrowers could then find themselves paying higher monthly mortgage costs if the price of their home increases.
Mortgage rates are already on the rise and the Bank of England is expected to hike the base rate further this week, pushing borrowing rates higher.
It’s also worth bearing in mind that the savings are not as high as those seen during the stamp duty holiday of last year – though some say that’s a good thing.
In 2021, Liz Truss’s leadership rival and previous chancellor Rishi Sunak temporarily paused stamp duty on all properties up to the value of £500,000, in a bid to get the market moving. It meant potential tax savings of £15,000, though demand pushed up prices for property, removal services and conveyancers, disproportionately so in some parts of the country.
There were reports of homebuyers ‘gazumping’ each other for removal vans and tussling to get to the top of their conveyancer’s to-do pile. It was stressful, to say the least.
Ahead of Kwarteng’s announcement, Coles warned: “No buyer will ever complain about a tax cut, but if the government was to cut stamp duty it would mean ignoring the fact that the real brake on the property market is a severe shortage of supply.
“Stimulating demand without addressing supply problems would risk more buyers chasing a tiny number of properties, which would push prices up. It’s what we saw during the coronavirus-inspired stamp duty holiday.
“By ramping up prices at a time of rising mortgage rates, the end result will be higher monthly mortgage costs, which are going to be increasingly unaffordable. This in itself could be enough to deter buyers, so there’s the risk it could end up doing more harm than good.”
Labour’s Rachel Reeves also said she did not think the stamp duty cuts would boost home ownership.
“These stamp duty changes have been tried before,” she said. “Last time the government did it a third of the people who benefited were buying a second home, a third home or a buy-to-let property. Is that really the best use of taxpayers’ money when borrowing and debt are already so high?”
“The government’s changes to stamp duty mean more people will be able to afford to get on the property ladder. It’s especially welcome at a time when interest rates are driving up the cost of borrowing,” she said. “Government has also reaffirmed its commitment to homeownership today. We agree it is critical: homeownership shouldn’t be for the richest in society, but achievable for everyone. This tax cut is a step in the right direction.
“The fact the change is permanent and starts today is particularly welcome as it will avoid the chaos of the previous stamp duty holidays. It means those who had put their move on hold earlier this week when speculation began can now crack on with their exchange and completion.”