Stamp duty cuts have been put at the centre of the Truss Government’s ‘new growth plan’ mini Budget.
Presented to Parliament on Friday, this, said Chancellor of the Exchequer, Kwasi Kwarteng, contained the ‘biggest package of tax cuts in generations’.
Promising deregulatory and high borrowing, the ‘growth plan’ included cancelling planned corporation tax rises (keeping the rate at 19 per cent), reducing the basic rate of income tax, from April 2023, to 19 per cent, reversing recent National Insurance rises, providing energy price rise support and setting an ‘ambitious’ growth target of 2.5 per cent. There were also promises to ‘unpick the complex patchwork of planning restrictions and EU-derived laws that constrain our growth’.
And at the centre of it all was an increase in the starting rate at which stamp duty becomes payable on property sales. By lifting 200,000 people a year out of stamp duty liability, the Government hopes to counter the effects on the housing market of last week’s increase in borrowing rates, the Bank of England raising the Bank Rate by 0.5 per cent 2.25 per cent. Cuts to stamp duty, said the Government, are ‘expected to increase additional residential investment, boost spending on household goods and support the hundreds of thousands of jobs in the property industry from removals companies to decorators’.
The change announced in the mini Budget mean the stamp duty nil rate band upper limit has been doubled from £125,000 to £250,000. For first-time buyers it has been increased from £300,000 to £425,000. From September 2022, the 2 per cent standard rate has been scrapped. The new standard rate of stamp duty will be nil for property purchase prices of £250,000 or less, 5 per cent for the portion of purchase prices between £250,000 and £925,000, 10 per cent for those between £925,000 and £1,5000, and 12 per cent for anything above that.
The 3 per cent additional higher rate payable on purchases of second and rental property purchases remains unchanged. First time buyers will be liable for 5 per cent on the portion property purchase prices between £425,001 to £625,000 (£625,000 being the new upper limit for first-time buyer relief).
The chancellor also confirmed that the Government is in discussion with 38 local and mayoral combined authority areas in England including Tees Valley, South Yorkshire and West of England to set up Investment Zones in specific sites within their area. Each Investment Zone will offer generous, targeted and time limited tax cuts for businesses and liberalised planning rules to release more land for housing and commercial development.
‘These will be hubs for growth, encouraging investment in new shopping centres, restaurants, apartments and offices, and creating thriving new communities’, said the Government.
Rebalancing of the thresholds for which stamp duty is paid, in particular for first time buyers, is long overdue to catch up with house prices which have risen at an extraordinary rate’, commented Propertymark chief executive Nathan Emerson. ‘We did hope that stamp duty for downsizers or last time movers would have also been reviewed to release the latter part of the market, which when blocked stops movement further down for second steppers and first-time buyers, causing stagnation as buyers have nothing to move on to’.
‘This could turn out to be an excellent time to properly revisit the structure of stamp duty’, said head of lending at Mortgage Advice Bureau, Brian Murphy. ‘Numerous governments have tinkered with it, but it tends to push up prices for a short period and then momentum generally mellows. It hasn’t been long since we last had a stamp duty break, and these things tend to generate momentum that causes a flurry of activity followed by a period of slowdown. However, the permanency of today’s announcement may temper a sudden surge of activity and allow some control of the UK property market to be regained. Still, the crux of the issue is that any changes in stamp duty will not address the main problem right now: a significant supply shortage’.
‘The stamp duty cut will ease some of the pressure on buyers right now’, said senior personal finance analyst at Hargreaves Lansdown, Sarah Coles. It’s particularly welcome as house prices rocket and interest rates continue to climb. But in the medium-term, it risks making life even harder. However, there’s every chance that the change doesn’t drain the toxic cocktail’.
