Radical cuts to stamp duty are on the cards as the nation awaits the first mini-budget since Liz Truss became Prime Minister.
New Chancellor Kwasi Kwarteng will unveil his economic plans on Friday, with a focus on stimulating growth and alleviating the pain of the cost of living crisis.
The Prime Minister told a press briefing in New York she was willing to take “difficult decisions” to drive economic growth and didn’t accept the argument “cutting taxes is somehow unfair”.
“What we know is people on higher incomes generally pay more tax so when you reduce taxes there is often a disproportionate benefit because those people are paying more taxes in the first place”, she told Sky News.
“We should be setting our tax policy on the basis of what is going to help our country become successful – what is going to deliver that economy that benefits everybody in our country.”
Ms Truss understood to believe cutting stamp duty would stimulate the housing market and help first-time buyers join the property ladder.
Here’s what we know about the proposed cuts.
What is stamp duty?
Stamp duty, also known as stamp duty land tax (SDLT), is a tax on property or land bought in England and Northern Ireland.
Scotland and Wales have their own taxes on land, which are called the land and buildings transaction tax (LBTT) and the land transaction tax (LTT), respectively.
Buyers do not pay any stamp duty on the value of a property up to £125,000.
You then pay 2 per cent on the value of the property up to £250,000, and 5 per cent on the next £675,000, with rates rising to 12 per cent for the most expensive properties.
The rules are different for first-time buyers, who are exempt from stamp duty for properties up to £300,000, and then must pay 5 per cent on the portion from £300,001 to £500,000.
If you are a first-time buyer purchasing a property that costs more than £500,000 you follow the same rules as other buyers.
Rates are different depending on whether the property is residential, a second home or buy-to-let.
How much will stamp duty be cut?
The current rates of stamp duty are as follows:
- £0 – £125,000 = 0 per cent
- £125,001 – £250,000 = 2 per cent
- £250,001 – £925,000 = 5 per cent
- £925,000 – £1,500,000 = 10 per cent
- £1,500,000 and over = 12 per cent
The average stamp duty that a homebuyer pays is currently £8,258, based on the average asking price of £365,173, according to Rightmove.
It is unclear by how much the Government is planning to cut stamp duty.
You can use this SDLT calculator to work out how much tax you must pay on a property at the current rates.
How will cutting stamp duty affect homeowners?
On the face of it, cutting stamp duty is a good think for people planning to buy houses, as it means they pay less tax on their purchase, making the home more affordable.
However, the proposition has been widely criticized by industry experts who believe cutting stamp duty will push up house prices, and therefore increase people’s mortgages.
Lewis Shaw, founder of Mansfield-based Shaw Financial Services, told Guardian: “It’s bovine short-termism at its worst. This move will push house prices even higher, worsening inflation and further pricing first-time buyers out of homeownership.
“If someone asked me how to drive an already overheated property market into dangerous bubble territory and make things worse for everyone, this policy would be it.”
A stamp duty holiday introduced by former chancellor Rishi Sunak during the pandemic saw the average UK house price jump by 15.5 per cent annually in July, according to the Office for National Statistics (ONS) – the biggest increase in 19 years.
Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, told the Evening Standard: “You can see why the Government is concerned about the housing market, because there’s a risk that rising mortgage rates and rising prices will dampen buyer enthusiasm. We know from recent experience that a stamp duty holiday effectively stimulates demand.
“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.”