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Breakdown: The Stamp Duty Cut In September 2022

Vil
by Vil
5 minutes

We gather the latest data on the recent stamp duty (SDLT) cuts and discuss the reasons, effects, and changes for new buyers.

Chancellor Kwasi Kwarteng announces a significant cut on levels at which the stamp duty tax kicks in. Here are the core takeaways.

Stamp Duty Cuts 2022 – A Brief Summary

  • Home movers are now free from the stamp duty tax on the first £250k of the new property value, up from £125k (a double cut).
  • First-time property buyers (FTBs) are stamp duty tax-free on the first £425k of the property price (only for homes that cost up to £625k).
  • The changes mean that home movers with lower budgets might save up to £2,500, while first-timers can save over £11,000.
  • The new thresholds removed more than 8 million homes across the country from the stamp duty tax brackets. However, more needs to be done to tackle the increased interest rates and mortgage payments. 

Reasons Behind The Stamp Duty Changes

The real estate market in the UK is one of the leading contributors and vital to its economy. Not only it provides thousands of jobs but also increases the spending of property buyers and households on new furniture, appliances, and other essentials.

The recent changes by the Chancellor aim to boost the UK's economy at a time when we see its slowdown. The Bank of England has warned that the UK may have already faced a recession. Moreover, the housing market likewise shows the first signs of a cooldown, with several experts recording minor falls in property prices even in London.

As a result, the Chancellor hopes that the new stamp duty thresholds will boost the momentum in the property market again.

Stamp Duty Cuts 2022 – Core Effects

Based on the property values across the country, more than 8 million properties will fall out of the stamp duty thresholds. It means 31% of new homes become stamp duty tax-free.

As a result, the recent changes are great news for the existing and FTBs property buyers in the lower end of the real estate markets (up to £250k and £425k). Areas with significant price growth will benefit the most – destinations like Nottingham, Oldham, and Wigan.

Unfortunately, the recent cuts will not benefit those buyers looking for properties worth between £250,000 and £925,000. They need to pay a higher 5% rate, and this band increased by 13.6 million homes in 2021. Unsurprisingly, most new homes in London cost more than the lower SDLT threshold, so these buyers in London are in less favourable settings.

Many experts believe the new cuts will increase property market activity, although at a much lower pace than during the last stamp duty holiday.

The effects we saw in 2021 were more significant because the tax holiday was temporary and much more generous. This year, the cuts are slightly more modest and permanent, meaning more content reaction from the buyers.

However, most experts agree the new cuts will boost the demand in the property market, especially from first-time buyers in secondary and new build sectors.

The changes will increase activity, which is good news for the market and the economy that faces considerable challenges.

What Are The Current Stamp Duty Tax Rates?

The stamp duty land tax still depends on property prices. However, the thresholds have changed.

  • Properties up to £250k – 0% SDLT
  • Properties up to £925k – 5% SDLT
  • Properties up to £1.5m – 10% SDLT
  • Properties above  £1.5m  – 12% SDLT

Note that homebuyers pay the tax in slabs.  In other words, a buyer pays 0% on the first 250k of the property value, 5% on the next proportion up to £925k, and so on. The highest bracket remains unchanged – 12% for home value above £1.5m.

As a result, current homebuyers are tax-free if they buy a home up to £250k. Previously, they would have to pay £2,500. Similarly, a property worth £500k is taxed with £12,500 instead of £15,000.

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