What the Stamp Duty Holiday Means for Buyers and Property Owners
In July, Chancellor Rishi Sunak announced that the government were introducing a stamp duty holiday to support the housing market. Taking immediate effect, the change means that many buyers will not be taxed when purchasing a new home or piece of land.
Stamp Duty Land Tax (SDLT) is a charge that previously applied to any residential properties costing over £125,000 and commercial properties worth more than £150,000. There is also a higher rate for Stamp Duty which applies to buyers purchasing who already own at least one property worth less than £125,000.
This ‘consideration’ applies to people buying a freehold property, buying a leasehold property, those entering a shared ownership scheme and when someone exchanges land or property in exchange for money.
There are repercussions for failing to pay stamp duty land tax. You must have your payment processed by the HMRC within 30 days of when they were executed. The fine itself ranges from 10% to 30% of the duty, depending on the lateness of the payment.
However, there will be some circumstances when the HMRC will cancel the penalty due to a ‘reasonable excuse’. They may withdraw the penalty if you can prove that:
– the missed deadline was due to postal delays
– the document was destroyed due to a fire, flood, or similar disaster
– solicitor handling your payment was severely ill or died
Stamp duty will also be counted as late if you fail to pay the full the amount. In which case, interest will still be incurred.
From 8th July 2020 to 31st March 2021, stamp duty will only apply to the purchase of properties over £500,000. This will apply to both existing homeowners and first-time buyers. This has been introduced as with falling house prices and GDP falling to a record monthly low in April, there have been major concerns over the property market. The government introduced the tax exemption with the hope that it would increase buyer demand and keep the economy thriving.
For buyers, the stamp duty holiday puts them in a better position to qualify for a mortgage, allowing them to put down a large deposit. The exemption is also likely to attract overseas buyers to leverage the buying opportunity.
This appears to be working as the HMRC reported a 15.6% increase in property sales in August. This has followed the 14.5% rise in July when the new scheme was released. This surge in property interest not only supports the housing market but has also helped a variety of property-related workers stay in business. Estate agents, housebuilders, tradesmen, and DIY firms have all felt the benefits of the exemption.
Other Types of Property Tax
Capital Gains Tax
Capital Gains Tax is a tax deducted when a person sells an asset that has increased in value. Typically, you would need to pay this tax if you were purchasing a second property, a buy-to-let property, investing in shares or selling a business. For a basic-rate payer, you will be taxed at 18% whilst a higher rate payer will be charged 28%. For 2020/21 the tax-free allowance is £12,300, so if your property has not gained over this amount you will be exempt from the tax.
Income Tax
Income Tax is a charge based on your personal income. In the case of property, this tax will be added to any rental income you receive as a landlord. In your self-assessment tax return, you must specify how much you have earnt from owning a leased property. The threshold for income is £12,500 and up to £50,000, you will pay the basic rate of 20% of your income. If you earn less than £1000 annually from your rental property, you will not need to inform the HMRC.
Corporation Tax
Corporation Tax is the commercial property equivalent of income tax. If a limited company sells an asset, such as a property, the profit made from the sale will be taxed. You will need to report your gains to the HMRC and from the figures provided they will calculate a tax figure.
If you have enjoyed reading this guide to Stamp Duty Land Tax changes, you may enjoy some of our other articles.
