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Budget 2021: Extension of Stamp Duty holiday is divisive

Sean Randall, Stamp Duty Partner says:

“As expected, the Government has extended the Stamp Duty holiday by three months. No Stamp Duty will continue to be payable on the first £500,000 of the price. Buyers completing before 1 July 2021 will benefit by up to £15,000. The twist is that a new holiday period will then apply for three months. No Stamp Duty will be payable on the first £250,000 of the price. Buyers completing before 1 October 2021 will benefit by up to £2,500.

“Buyers due to complete between 1 April and 30 June will breathe a sigh of relief; estate agents, surveyors and mortgage brokers will rub their hands with glee; and conveyancers, exhausted by the pressure to complete before 1 April, will look ahead with dread.

“The measure, part of the Chancellor’s jobs package, was intended to protect the half a million of jobs in sectors sensitive to the housing market: e.g., garden centres, DIY stores, home furnishing retail, etc. Now that we have a roadmap out of lockdown, it is logical to extend furlough and the Stamp Duty holiday to align with it.

“The cost, which is baked into the Stamp Duty holiday, is market distortion, with buyers bringing forward their plans to move, bunching transactions during the holiday and producing a consequential fall in the number of transactions once the holiday ends – the so-called ‘cliff-edge’. Some drop in house prices (already 8.5% higher due to the holiday) is expected, but the real pressure on house prices would come from unemployment, not the loss of the holiday. By protecting jobs until lockdown ends, the Chancellor hopes to protect the economy and indirectly avoid a house price crash.

Buyers due to complete between 1 April and 30 June will breathe a sigh of relief.

“The pleas from professional bodies for a tapered end to the holiday have been heeded to some extent. Rather than one large ‘cliff-edge’ there will now be two smaller ones. That said, buyers failing to complete before 1 July will lose up to £12,500, so there will continue to be pressure on many to complete before the second holiday begins: average house prices in many parts of the country exceed £250,000.

“Many thought that the Stamp Duty holiday was unnecessary and an unwise policy. They would say that:

  • the housing market was not in trouble
  • the surge created by the holiday has produced a logjam
  • that the positive ripple effect will turn into a negative ripple effect as soon as the holiday ends
  • it was estimated to cost £3.8 billion pre-extension and the rise in house prices shows that the tax saving has been enjoyed by sellers not buyers
  • extending the holiday means that that the Chancellor is doubling down.

All of that is probably true, but having made the decision to give the holiday, extending it for the journey out of lockdown is not such a big gamble.”

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