What Does the Stamp Duty Holiday Mean for Investors?
It’s fair to say that 2020 has so far been a very challenging year for us all. Due to the COVID-19 pandemic, our way of life has changed quite significantly. In March, the British government announced a series of restrictions to combat the spread of the coronavirus disease. The effects of these changes have caused several financial ramifications which will be felt for years to come. To help revitalise the UK economy following the lockdown restrictions, the government has introduced several measures including a stamp duty holiday.
In this article, we will explain what the stamp duty holiday is and why it was introduced, and how it will affect you as a property investor.
What Is Stamp Duty?
Whenever you purchase a residential property or a plot of land in England or Northern Ireland, you may be required to pay a tax called the Stamp Duty Land Tax (SDLT). The taxable amount usually depends on when the property was bought and how much it was purchased for. The tax was introduced in 1694 to raise funds for the war against France. The stamp duty tax has evolved over the years and brand thresholds were introduced by the Labour government in 1997. The tax only applies to properties purchased at £125,000 and over.
What Is the Stamp Duty Holiday?
On July 8th, Chancellor Rishi Sunak unveiled the emergency Budget. As part of the Budget, he announced that a stamp duty holiday would take place effective immediately. The new tax rules are set to be in place until 31st March 2021.
The stamp duty holiday means that if you are purchasing a property to be your main residence, then you will only pay the tax if the house costs more than £500,000. From 1st April 2021, the holiday is set to end and the previous rates will come back into force, meaning that homes under £125,000 will continue to be exempt from stamp duty. After this date, houses valued between £125,000-£250,000 will require a tax of 2% and those above £250,000 will start at 5%.
What Does It Mean for Property Investors?
But what does this mean for property investors? As with the previous rules, you must continue to pay a stamp duty surcharge for second homes. However, the new £500,000 threshold still applies which means that investors benefit from a reduced surcharge. Any second home purchased for under £500,000 will require a surcharge of 3%. In comparison, the previous rate was 5% for homes purchased between £125,000-£250,000 and 8% for homes between £250,000-£925,000. This can lead to savings of thousands for investors.
The demand for property is ever-growing. While the lockdown period saw a decrease in housing demand, things are beginning to pick up at a quick pace, especially following the stamp duty holiday announcement. With the potential of huge savings, now is a great time to invest in residential property. Contact us to find out how we can help you find your ideal investment opportunity.
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