The holiday was designed to give the property market a boost and to help people whose incomes may have plummeted due to covid; but has it worked? And what will happen when it ends?
When the government announced a Stamp Duty holiday in July 2020, it wasn’t supposed to last for a year. After being extended twice, the tax-free period is now set to end at the end of June, when rates will begin a staggered return to normal values. In October, Stamp Duty will return to pre-pandemic levels, when it raised £12bn for the Treasury every year. The holiday was designed to give the property market a boost and to help people whose incomes may have plummeted due to covid – but has it worked? And what will happen when it ends?
Under the terms of the holiday until 30 June, no stamp duty is currently payable on the first £500,000 of any property transaction. Above that, 5% is due on values from £500,001 to £925,000, 10% on £925,001 to £1.5m and 12% on anything above that. The ‘holiday’ is in fact an increase in the threshold at which the tax applies, raising it from £125,000 to £500,000. From 1 July until 30 September this threshold will change to £250,00, and on 1 October it reverts to £125,000. This means that buyers need to complete property purchases by 30 September in order to benefit from the stamp duty holiday. Anyone who exchanges on or before 30 September, but completes after 30 September will have missed the deadline and need to pay the normal rate of stamp duty.
This is inevitably putting pressure on the market as people rush to complete on their purchases in time. Donna Pearson of Winkworth in Canterbury says: “We have found over the last couple of weeks there is a scramble to see if they can get a property under offer – we had one property with 15 viewings in the first week. However, we have also seen conditional offers that will be reduced if they don’t hit the stamp duty deadline.” In these cases the cost is effectively passed on to the vendor, which in turn is potentially pushing up property prices – and thus ultimately defeating the scheme’s original aim.
Matthew Hallett of Winkworth in Salisbury goes so far as to say that the Stamp Duty holiday “has contributed to house prices rising at the fastest rate since 2004”. He explains: “An end of June completion has been nigh-on impossible to achieve for sales agreed after March, with overworked land charges departments turning around searches slowly.” Still, he believes that investing in bricks and mortar as an “inflation-proof, long term investment” is not set to go out of fashion any time soon. Donna Pearson agrees, saying: “There remains a shortage of property and therefore any property that comes to the market has a steady stream of interest and serious interest, so the signs are that there will continue to be a steady but positive market through the summer.”
House prices are now 7.1% higher than they were in April 2020, and the Stamp Duty holiday can be said to have contributed to the housing market’s healthy buoyancy, which makes the scheme overall a successful one. Economists are predicting an easing of house price growth as the year continues, but Stamp Duty or no Stamp Duty, the market is certainly very much alive.