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On the 8^th July, the Chancellor announced an increase in the residential stamp duty threshold from £125,000 to £500,000. This means that until the 31st March 2021, home buyers and property investors in England and Northern Ireland stand to save as much as £15,000 on property purchases.

Overall, the Treasury estimated that the changes mean 9 out of 10 purchasers will pay no stamp duty - with an average saving of £4,500. To find out just how much you can save, continue reading.

We’ve outlined five ways you can make the most of the UK stamp duty cut, whether you’re a first-time buyer, homeowner or existing Landlord.

What is Stamp Duty?

Stamp Duty is a tax that you pay when you purchase a property or land over a certain price in England and Northern Ireland.

You pay the tax when you:

• buy a freehold property
• buy a new or existing leasehold
• buy a property through a shared ownership scheme
• are transferred land or property in exchange for payment

How Does Stamp Duty Normally Work?

Normally, the stamp duty threshold is £125,000 for residential properties. This means that for properties under £125,000, you pay no stamp duty. For properties above this threshold, tax is charged at increasing percentages on different portions of the price. For example, the stamp duty rate is set at 2 per cent on the portion of the property value between £125,001 and £250,000. For the portion between £250,001 and £925,000, the rate is 5%.

How to make the most of the UK stamp duty cut

1. Buy your first home

Before the new Stamp Duty rules, first-time buyers were already entitled to special rates. Normally, first time buyers only need to pay stamp duty on properties over £300,000. For properties under £300,00 there is no stamp duty. For properties between £300,000 and £500,000, the stamp duty rate was set at 5% on the portion of the property value between £300,001 and £500,000. If first time buyers were purchasing property over £500,000, they were paying normal stamp duty rates.

The £300,000 threshold meant most first-time buyers were already benefiting from 0% stamp duty relief. (The average first home in England costs just £208,000). However, for first time buyers purchasing property above £300,000, the new Stamp Duty rules mean substantial savings. For example, the average first home in London costs £426,000. Normally a first-time buyer would pay 5% on the portion between £300,001 and £426,000 (£6,300). Now they pay nothing.

2. Move up the ladder

Before the new Stamp Duty rules, normal stamp duties were applicable to those moving between homes. This means that existing homeowners were paying up to £15,000 in stamp duty for properties worth between £125,000 - £500,000.

The Stamp Duty holiday offers considerable savings for home movers moving to more expensive properties. Now, instead of stamp duty kicking in at £125,000, it will apply at £500,000. This means a homeowner buying a property worth £300,000 will make a saving of £5,000 - rising to £15,000 for those buying properties worth £500,000 or more. With the average home in Canary Wharf standing at £572,000, this means a nifty saving of £15, 000.

3. Invest in Buy-to-let

Before the new rules, buy-to-let investors paid the most in stamp duty. Previously, stamp duty rates were at 3% for the first £125,000, increasing to 5% on the portion between £125,001 and £250,000 and 8% on the amount above £250,001.

In England and Northern Ireland, landlords and those buying second homes still need to pay the 3% surcharge. However, they can benefit from the raised threshold. Previously, an investor buying a £500,000 home would have needed to pay 3% on the first £125,000 (£3,750), 5% on the portion between £125,001 and £250,00 (£6,250), and then 8% on the remaining £250,000 (£20,000). This meant a stamp duty bill of £30,000. Now, investors only need to pay 3% on the whole £500,000, resulting in a saving of £15,000. 

For those looking to invest in popular rental areas like London, this is good news. While the average stamp duty bill for an investor in England is predicted to fall by £1,840 (22%), in London it’s £7,240 (26%).

4. Transfer your buy-to-let into a limited company

For Landlords looking to transfer buy-to-let properties into a limited company, the Stamp Duty Holiday has additional perks.

The main benefit of using a limited company to hold buy-to-let properties is that you pay corporation tax on profits, rather than income tax. In 2020, corporation tax is charged at 17% of profit, compared to the higher income tax rate of 40%. If you hold a property under a limited company, you effectively pay less tax (though you may still be subject to income tax when withdrawing profits from the company.)

Before the stamp duty holiday, when landlords wished to move a property into a limited company structure, they would need to pay stamp duty on this transaction. This is because the landlord would essentially be selling the property to the limited company. While the surcharge still applies, the raised threshold means landlords could save substantial amounts by transferring their properties into a limited company before March 2021.

5. Sell your home

The Stamp Duty Holiday combined with pent up demand during lockdown means there is a flood of buyers on the market right now. Potential buyers stand to save as much as £15,000 on home purchases made before March 31st 2021. Though the main beneficiary of the stamp duty relief is of course the purchaser, homeowners benefit too.

For those looking to sell their property, now is the opportunity. Homes are effectively more affordable, meaning a larger pool of potential buyers. With property prices in London being higher than the UK average, buyers here stand to make the biggest savings. We suggest you act soon.

How Proper Local Can Help

Whether you’re looking to buy, invest or even sell your property in Canary Wharf or the surrounding area, contact Proper Local. We specialise in the local E14 property market and can help you make the most out of the UK Stamp Duty Cut.

Contact us on 0203 282 3733.