New Chancellor Kwasi Kwarteng will unveil his economic plans on Friday, with a focus on boosting growth and easing the pain of the cost-of-living crisis. The prime minister told a news conference in New York that she was willing to take “difficult decisions” to drive economic growth and did not accept the argument that “tax cuts are somehow unfair”. “What we know is that people on higher incomes generally pay more tax, so when you cut taxes there is often a disproportionate benefit because those people pay more tax to begin with,” he told Sky News. “We should set our tax policy on the basis of what will help our country be successful — what will provide that economy that benefits everyone in our country.” Ms Truss was understood to believe the stamp duty cut would boost the housing market and help first-time buyers get on the property ladder. Here’s what we know about the proposed cuts.
What is stamp duty?
Stamp Duty, also known as Land Stamp Duty (SDLT), is a tax on property or land purchased in England and Northern Ireland. Scotland and Wales have their own taxes on land, called land and building transaction tax (LBTT) and land transaction tax (LTT), respectively. Buyers pay no stamp duty on a property worth up to £125,000. You then pay 2 per cent on the value of the property up to £250,000 and 5 per cent on the next £675,000, with rates rising to 12 per cent for the most expensive properties. The rules are different for first-time buyers, who are exempt from stamp duty on properties up to £300,000 and then have to pay 5 per cent of the portion between £300,001 and £500,000. If you’re a first-time buyer buying a property that costs more than £500,000, you follow the same rules as other buyers. Prices vary depending on whether the property is a residence, second home or buy-to-let.
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How much will stamp duty be cut?
The current stamp duty rates are as follows:
£0 – £125,000 = 0 per cent £125,001 – £250,000 = 2 per cent £250,001 – £925,000 = 5 per cent £925,000 – £1,500,000 = 10 per cent £1,500,000 and over = 12 per cent
The average stamp duty paid by a home buyer is currently £8,258, based on an average asking price of £365,173, according to Rightmove. It is not clear to what extent the government plans to reduce stamp duty. You can use this SDLT calculator to work out how much tax you should pay on a property at current rates.
How will the stamp duty cut affect homeowners?
On the face of it, the reduction in stamp duty is a good idea for those planning to buy houses, as it means they pay less tax on their purchase, making the house more affordable. However, the proposal has been widely criticized by industry experts who believe that cutting stamp duty will push up house prices and therefore increase people’s mortgages. Lewis Shaw, founder of Mansfield-based Shaw Financial Services, told the Guardian: “It’s short-term cattle at worst. This move will push house prices even higher, exacerbating inflation and further pricing first-time buyers out of home ownership. “If someone asked me how to drive an already overheated housing market into bubble danger territory and make things worse for everyone, this policy would be it.” A stamp duty holiday introduced by former chancellor Rishi Sunak during the pandemic saw the UK’s average house price jump by 15.5 per cent year-on-year in July, according to the Office for National Statistics (ONS) – the largest increase in the last 19 years. Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, told the Evening Standard: “You can understand why the government is worried about the housing market because there is a risk that rising mortgage rates and rising prices will dampen enthusiasm for buyers. We know from recent experience that a stamp duty holiday effectively stimulates demand. “No buyer will ever complain about a tax cut, but if the government were to cut stamp duty it would be ignoring the fact that the real drag on the property market is a severe lack of supply. “Stimulating demand without addressing supply issues would risk more buyers chasing a small number of properties, pushing prices up. It’s what we saw during the coronavirus-inspired stamp duty holidays.”
