The 2010 budget announced by Alistair Darling has extended the stamp duty holiday for first time buyers so that stamp duty does not have to be paid when purchasing a house below £250,000.00. The tax break will provide savings of up to £2,500 as the 1% stamp duty will not need to be paid by those that qualify and whose property completion takes place between 25 March 2010 and 25 March 2012.
However, if you are not a first time buyer then stamp duty will be charged at 1% for all properties worth over £125,000, as the previous tax break on all properties up to the value of £175,000 has come to an end.
There will be strict rules on who can be classified as a first time buyer and you will not qualify for the relief if you have had any previous interest in a property. This would include if you have inherited property or have a share in investment property, even if you did not use the property as your home or owned it with other people. This also includes if you own or have owned property abroad. If you are buying jointly with a friend or partner then both of you must be classified as first time buyers in order to benefit from the relief. In order to obtain the relief you will need to declare on the Land Transaction Return when purchasing that you are a first time buyer and it will be the purchaser’s responsibility to ensure that this information is correct.
For those who are first time buyers, the Council of Mortgage Lenders estimates that 92% of all first time buyers in 2009 bought properties worth less than £250,000, so the majority of first time buyers will benefit from the stamp duty holiday.
Many properties that were on the market for between £251,000 – £275,000 are likely to drop to £250,000 as properties bought for even a penny over the £250,000 threshold will still be liable for the 3% stamp duty land tax, which for a property worth £260,000 is an extra £7,800 to pay.
At the other end of the property market the stamp duty tax rate for properties over £1m will be raised to 5% from April 2011. This is an increase of 1% from the previous rate of 4% that applied to all properties worth over £500,000.00. It is intended that this change in the tax rate will be indefinite, unlike the first time buyer two year holiday. This new higher rate will add at least £10,000 onto the tax bill. Therefore it is expected that many high value properties will come on the market in the next year to avoid purchasers being put off by the higher rate of tax after April 2011.
Alternatively, for people purchasing high value properties there are legitimate stamp duty land tax saving schemes. Although these schemes are very complex and specialist advice will need to be sought in order to set them up, these are likely to become more common if it means saving on a tax bill of £75,000 for a £1.5m property. Ultimately, only a small number of people pay more than £1m for a house, the vast majority of those house purchases taking place in the South East of England. Therefore, even with the tax increase this tax measure will contribute roughly 2% extra to the £3billion stamp duty revenues.
If you require any advice on whether or not you qualify for the first time buyer stamp duty relief or you require any additional information on the above then please contact someone in our property team who will be more than happy to help.