Yesterday the Chancellor Rishi Sunak announced much-anticipated Rates and property ladders: Martin Whitehorn discusses the stamp duty land tax extension and incentives for 95% mortgages announced in the Budget.
To start with, the Chancellor announced that the current nil rate band for stamp duty land tax (SDLT), at which buyers pay 0% SDLT, will continue to be up to £500,000 until 30 June 2021, extended from 31 March 2021. The nil rate band will be reduced from £500,000 to £250,000 from 1 July 2021 to 30 September 2021.
OK, but would you give an example?
Let’s say I and a partner are buying a freehold home together and the purchase price is £500,000. In this scenario we do not own any other properties but are not first-time buyers as at least one of us has owned a property before. Therefore, if we complete our purchase by 30 June 2021, I and my partner would incur no SDLT on that £500,000.
However, if we complete the purchase between 1 July 2021 and 30 September 2021 instead, we do not incur SDLT on the first £250,000 of the property value, but will have to pay 5% on the remaining £250,000, which amounts to £12,500 in SDLT.
If instead we complete the purchase by 1 October 2021, then we do not incur SDLT on the first £125,000 of the property, but the value from £125,001 to £250,000 will be charged at 2% SDLT and the value from £250,001 to £500,000 will be charged at 5% SDLT, meaning that we would have to pay £15,000 in total.
What if I’m buying a leasehold home?
The position is much the same, unless you are buying a shared ownership leasehold home, which can vary. I should mention for now that the SDLT nil rate band is based on not only the premium, but also the rent, which can incur an SDLT liability, would fall from £500,000 to £250,000 by 1 July 2021 and down to £125,000 by 1 October 2021.
What if I’m a first-time buyer?
Now let’s say that my partner and I have never owned property before. If we complete the purchase by 30 June 2021 we can utilise the same benefit as if we were not-first time buyers. If we complete the purchase after 30 June 2021, we can make use of first-time buyer relief, meaning we do not incur SDLT on the first £300,000 of the property, but are due to be charged 5% SDLT on the remaining £200,000 of the property price, having to therefore pay £12,500 in SDLT.
It is important to note that, among the other requirements for first-time buyer relief, it is only available on properties worth up to £500,000, so any properties more expensive will not benefit from it.
You mentioned incentives for 95% mortgages?
Much is still unknown about this scheme, which people have wondered might be similar to Help to Buy loans. Unlike Help to Buy equity loans, it is understood that this scheme will not be restricted to new-build homes.
Mortgage lenders would be incentivised to offer mortgages at rates fixed for at least 5 years. Both first-time buyers and those who have owned property before are understood to be eligible to benefit from it, subject to a £600,000 cap on the value of the properties which these mortgages are being used to buy.
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Property solicitor Martin Whitehorn
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