The stamp duty holiday is expected to be extended by three months, until the end of June. Rishi Sunak is to announce the extension in the spring budget on 3rd March, according to an article in The Times.
The stamp duty holiday was originally introduced in July in the Chancellor’s summer statement. The holiday applied to property sales in both England and Northern Ireland with immediate effect, up to a property price threshold of £500,000.
Britain’s Building Societies Association had been campaigning for a three-month extension to the tax relief for many months, and the news will undoubtedly come as a huge relief to buyers who have been nervously waiting to see if they’re able to complete their house purchase in time for the 31st March deadline.
‘This news is big a win for the property industry and home buyers, especially given that without it thousands of purchases could fall through and many will pause their plans to buy houses as our research shows,’ says David Hannah, Founder and Principal Consultant of Cornerstone Tax.
‘The approaching end of the stamp duty holiday is already having a profound effect on the property market, sale collapses are approaching record highs and solicitors and conveyancers are already reporting that they expect to see a considerable drop in demand very soon.’
What isn’t clear at the moment is whether the extension will be made available to both new and existing buyers. If it turns out that the extension applies to new buyers, then it may create more problems than it will solve by adding to the existing backlog of house sales that are moving through the pipeline of conveyancing at a glacial pace.
However, existing buyers who have agreed a sale but not completed will welcome the move that allows them to stop worrying about footing the stamp duty bill they had budgeted to avoid.
What is a stamp duty holiday?
A prospective home buyer has to pay stamp duty on a property worth more than £125,000. The more expensive the property is, the higher the stamp duty. However, first-time buyers purchasing a property costing less than £300,000 don’t pay stamp duty.
The idea behind a stamp duty holiday is that it will lessen the financial burden on potential home buyers. Hopefully, encouraging more prospective buyers. This, in turn, would help restore confidence in the market. These would two factors would work together to get the market moving again.
Would a stamp duty holiday help potential buyers?
A stamp duty holiday is not unprecedented. During the 1992 downturn, a stamp duty holiday helped double the number of homes sales. A 12-month stamp duty holiday was also one of the measures introduced following the 2008 financial crash to boost the property market.
However, stamp duty is a lucrative tax for the Government. In 2018 to 2019 it brought in £8.4 billion in revenue for residential sale. A suspension of the tax could potentially lose the Government billions.
Moreover, advocates of stamp duty have argued that it benefits first-time buyers, by edging out buy-to-let speculators. So if the government was to only introduce a stamp duty holiday, it could potentially backfire on buyers in lower price bands.