Recent reports show that the front runner in the Conservative leadership contest, Boris Johnson, is planning to make big changes to the UK’s current stamp duty tax system. The idea is to help kickstart the UK’s housing market once more, particularly if the UK exits the EU without a deal in place.
Reports suggest that among the changes to the current stamp duty system Johnson, in his position as Prime Minister, would make are:
- End stamp duty of any sort for properties worth under £500,000
- Reverse stamp duty increases on more expensive homes back to 7% from the 12% they currently stand at.
That would be very different from the current system which is:
- Properties under £125,000 are exempt from stamp duty.
- Home buyers pay a 2% tax on the value of a property between £125,000 and £250,000.
- They pay a 5% tax on the value between £250,001 and £925,000
- A 10% stamp duty tax is payable on the proportion of a property value between £925,001 and £1.5 million
- Some 12% tax is due for more expensive homes, over the £1.5 million mark.
In addition, home owners buying a second home must pay an addition 3% stamp duty tax on top of the existing levels. This means someone buying a super prime home worth more than £1.5 million as a second property, would pay 15% on a portion of their tax bill.
When would the stamp duty change be announced?
If Boris Johnson becomes the next British Prime Mister, reports imply that he would announce an emergency autumn budget and bring it forward to September. The possible timing change would likely be to help support the UK’s economy which could suffer should a no-deal Brexit occur.
However, while the announcement may be made in September, the exact timing of when those changes will be implemented remains unknown. As many new tax changes tend to be ushered in at the beginning of the new tax year, its possible April 2020 would be the date, but there are currently no details suggesting that would be the case.
Housing market could benefit from a radical stamp duty change
The UK’s housing market has been slow for some years now and Brexit has certainly been part of the reasons for that. There has been much uncertainty as to how the UK and the EU will work together moving forward, rules and taxes among the major details many businesses are considering.
Even though unemployment continues to fall, long term job security is a worry for many Britons. While saving a deposit to buy a home is a major outlay, monthly mortgage payments are high too. Some people have preferred to err on the side of caution before making such a large financial commitment.
In addition, banks lending rules are now stricter than ever before and stress tests must include scenarios where interest rates rise much higher than they currently are. This means that fewer applications are being approved.
If the cost of buying a home and moving was reduced, then its possible it would encourage more people to buy property, despite the broader uncertainty. It could also encourage buy-to-let investors to reconsider plans to reduce their portfolio in favour of growing it. In addition, for other investors, lower stamp duty rates on more expensive homes could help revive sales in the super prime sector.
However, even if Johnson does become the next PM and he does introduce a new stamp duty tax system, there’s no guarantees that it would stimulate the housing market. The eventual Brexit scenario is a big unknown and other elements will also play a part.
For now, though, there are many voices that say they would welcome a stamp duty shake up.