- REVEALED: THE PLAN TO EXTEND AND STAGGER STAMP DUTY HOLIDAY BY 3 MONTHS!
REVEALED: THE PLAN TO EXTEND AND STAGGER STAMP DUTY HOLIDAY BY 3 MONTHS!
The Government is expected to announce an extension to the stamp duty holiday as the industry rallies behind a staggered three-month drop-off.
The Times newspaper said it has been told that Chancellor Rishi Sunak will use his Budget next week to move the deadline to the end of June.
A spokesman for The Treasury said they could not speculate on tax ahead of fiscal events.
Rightmove, the property website, estimated if the stamp duty holiday was extended until the end of June, an additional 300,000 sales in England could benefit. This would mean that buyers could save £1.75bn in tax, with 80pc of these sales paying no stamp duty at all.
If the holiday is not extended, 100,000 buyers who agreed a purchase last year will lose out on the tax savings, according to Rightmove.
Tom Bill, of estate agency Knight Frank, said: “An extension is inherently fair because it addresses the fact parts of the conveyancing system have become overwhelmed, which has jeopardised completion dates.”
Analysis firm Capital Economics said the move would prevent sales tumbling in the months after April, and stop prices falling due to fall-throughs and renegotiations.
However, it suggested that the extension would not incentivise much new activity as conveyancing delays, which have created a four-month gap between an offer being accepted and exchange, would not allow transactions to take place in time.
Treasury under pressure
It comes after the Treasury faced pressure for an extension to the holiday. Trade bodies the Building Societies Association and UK Finance have proposed a tapered end to the holiday, which would see any house purchase where a mortgage has been approved at a certain date granted an additional three months to complete while benefiting from the rate reduction.
The BSA’s Paul Broadhead said: “The unprecedented increase in property transactions have resulted in unexpected delays in completing house purchases. Those already in the house buying process should not be penalised. It would be unfortunate if the positive effects of the stamp duty holiday unravelled for the sake of a short extension.”
It was understood ministers had settled on a plan to extend the stamp duty holiday by six weeks for those already in the process of buying. However, mortgage lenders said this would not be enough to stop sales falling through.
Mark Hayward of Propertymark, a trade body, said: “Extending the holiday until June will create another cliff edge.
“We know from our own research that the majority of estate agents expect to see an increase in the number of failed sales if the stamp duty holiday ends at a cliff edge, so we need Government to consider a tapered end to the holiday so that buyers aren’t forced to pull out at the last minute and the property market can continue to thrive.”
Impact of the tax cut
The temporary stamp duty holiday was introduced last July and meant residential buyers paid no tax on the first £500,000 of a property purchase. After March 31, the nil-band rate could reduce to £125,000 and a 3pc levy on anything above.
The holiday has boosted confidence in the market following its shutdown in March last year. However, the spike in demand combined with successive lockdowns have led to increased delays in the home buying process. It now takes an average of 22 weeks between agreeing an offer to completion versus 12 weeks prior to the pandemic.
Buyers are struggling to complete within the current deadline. One in five sales agreed in July 2020 will miss the March 31 cut off, according to Rightmove.
A Treasury spokesman said: “The temporary stamp duty cut is helping to protect hundreds of thousands of jobs which rely on the property market by stimulating economic activity.
“Its time limited nature is what has encouraged people to take advantage of the scheme.”
Q&A: What you need to know about the stamp duty holiday extension
What is Rishi Sunak expected to announce?
The Chancellor introduced the six-month stamp duty holiday in July 2020 to boost the property market after the spring lockdown. The move raised the stamp duty bar from £125,000 to £500,000 in England and Northern Ireland, meaning buyers would only pay the tax on transactions above this value. In Scotland and Wales the threshold has been raised to £250,000.
However, the holiday is due to finish on 31 March, leading to fears of a cliff-edge in which buyers in the middle of transactions will not complete before the temporary tax cut expires and will be hit with an unexpected tax bill.
A report in The Times states that Mr Sunak is preparing to grant a three-month extension to the end of June in next week’s Budget.
Who will this affect?
The popularity of the stamp duty holiday has led to unexpected delays hitting buyers due to a sharp rise in transactions.
Property website Rightmove estimates that as many as 100,000 buyers are rushing to complete on home purchases before the end of March.
It also calculates that 300,000 buyers will benefit from the extended tax holiday, bringing overall savings of £1.75bn.
What about a longer extension?
While a longer, or even permanent, stamp duty cut would likely provide a big boost to the housing market, Mr Sunak is reportedly against such a move due to the impact on tax receipts amid surging government borrowing.
What were the effects of the stamp duty holiday?
The higher threshold led to a frenzy of property transactions from the summer despite the economic downturn. The Centre for Policy Studies, a think tank, calculated that after the market was closed in the first lockdown, transactions rocketed by over 130pc through to the final quarter of 2020 to hit 316,300 sales.
Halifax bank research found homemovers – those who are not first-time buyers – saved an average of £11,566 in stamp duty. However, the rush to complete transactions prior to the March cut-off raised the average sale price by almost £60,000 in England and Wales to £431,327 last year.
Extension must not simply delay cliff-edge
A three-month stamp duty extension will bring vital support for the property market, writes Melissa Lawford. The coming blow of rising unemployment and forced sales will be greatly softened if the stamp duty incentive ends just as the vaccine-led recovery is in full swing.
Property website Rightmove estimates that an additional 300,000 buyers will benefit from the extended tax holiday – making £1.75bn in collective savings.
But Chancellor Rishi Sunak must not be simplistic. A blanket three-month stamp duty extension for all transactions will simply delay the cliff-edge that the industry has warned is coming when the incentive ends. It could even make it worse.
If the tax break will not be made permanent (as The Telegraph has argued it should be), its end must be tapered. Mr Sunak would be wise, for example, to offer the extra time only to buyers who have already agreed sales.
Conveyancers, local authorities, lenders and estate agents are all overwhelmed by the enormous scale of buyer demand. A three-month stamp duty holiday extension for all transactions will not help them work through the backlog, but increase the number of sales that they have to process.
More buyers will benefit from the tax break, but more still could agree sales and then not be able to complete in time for the new deadline. In turn, these buyers will either pull out of sales or renegotiate their prices, perhaps on an even larger scale than was expected in April. Mr Sunak must be careful that the extension does not shoot itself in the foot.