For transactions on or after 23 September 2022, the Government has cut Stamp Duty by up to £2,500 for property purchases completing from today, with the maximum saving for first-time buyers now even greater at £11,250.
Like the extension to the last Stamp Duty holiday, the cut is given by increasing the point at which the tax is payable. Now, the first £250,000 of the price is exempt for home movers and the first £425,000 is exempt for first-time buyers. Before today, only the first £125,000 was exempt for home movers and £300,000 for first-time buyers. The cap for partial first-time buyer relief will also be lifted from £500,000 to £625,000.
In contrast to the previous holidays, however, this cut is not time limited. The aim is to grow the housing market, and like the other announcements made today, it’s a big risk. If it works, it will warm up parts of the economy connected with the housing market at a time when the Bank of England is trying to cool down the economy. It will also drive-up house prices, meaning that the saving will be enjoyed by sellers rather than buyers. The worry, however, is that buyers tempted by the tax cut will suffer when interest rates then rise further, as they are predicted to. Those tempted by the last Stamp Duty holiday have already started to leave fixed-rate mortgages and are bearing the increased cost of borrowing.
Will the measure create a house price bubble that will burst? If so, this will surely (more than) reverse any growth promoted by it? The measure is predicted to cost the Exchequer £1.5bn every year – a drop in the ocean compared to the cost of some of the other tax cuts announced today.
The Government has said that it wishes to simplify the tax system. Nothing was said to indicate that Stamp Duty will be reformed more widely, but who would bet against more changes being announced in the main Budget. Over recent years, the tax has been chosen to achieve specific policy aims (e.g., helping first-time buyers or discouraging non-residents or buyers of second homes). This will surely continue notwithstanding the force of the economic arguments to the contrary.
Furthermore, today’s Stamp Duty cut will be enjoyed twice by many buyers of annexes, and applies per property. If the annex counts as a separate dwelling, it will increase the relief given to buyers by £5,000. Changes are expected soon that will stop the relief being claimed on annexes, which may produce a frenzy of annex buyers trying to take advantage of the relief before it is too late.
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