Sunak announces stamp duty ‘holiday’ and VAT cut
Following the earlier announcements regarding the future of employment in the UK, the Chancellor of the Exchequer, Rishi Sunak, has announced a temporary ‘holiday’ on stamp duty on the first £500,000 of all property sales in England and Northern Ireland until the end of March 2021.
These plans will come into effect today and will be applied to the levy paid on land or property sold for £125,000 or more.
In a move to kickstart house buying/selling, first-time buyers will pay no tax on properties or land for the value up to £300,000.
Sunak further announced that also the government would cut VAT from 20% to 5% for the hospitality and tourism sectors from Wednesday next week (July 15) until January 12 2021.
Jeff Doble, Founder & Chairman of DEXTERS said: “The Chancellor’s Stamp Duty announcement, is to be welcomed as it will help so many people buy a home in London and provides a timely boost to the market. However it is not the fundamental reform that is really needed. The whole idea of Stamp Duty has suffered from ‘mission creep’, having evolved from a relatively harmless token amount to a huge percentage that is stifling and unhealthy for the market.
“Whilst the announcement will help boost demand for flats across London, the current Stamp Duty system is not helping property sales at higher levels of the market. In our view, a reduction in stamp duty across the board or a complete Stamp Duty ‘holiday’ at all price levels for six months would be a better solution, along with a relaxed planning policy to help boost housing supply and maintain the momentum and recovery to the housing market.”
Director fo Benham and Reeves, Marc von Grundherr, commented: “84% of transactions made in the last six months would have seen the amount owed in stamp duty eradicated as a result of today’s announcement, so there’s no denying that this should bring about a monumental boost for homebuyers going forward.
“However, some may also argue that it’s not before time. Stamp duty is simply an additional financial barrier when buying and one that does little more than filling the government’s pockets.
“While the market has weathered the storm of pandemic price decline so far, this latest move should help keep property values buoyant. Although, it is disappointing to see yet another government initiative that focusses on fuelling demand instead of addressing housing supply.”
Managing Director of Barrows and Forrester, James Forrester, commented: “A bold move by the chancellor today and one that will no doubt stoke the fires of homebuyer demand with such a large proportion of those transacting due to benefit.
“This shot in the arm should ensure top-line demand and price growth remain immune to any unseasonal downward trends and implementing this initiative from the get-go avoids any short-term decline in transactions.
“The only criticism is, perhaps, that the government has once again focussed on fuelling demand rather than addressing the more pressing issue of housing supply. While this will help boost house prices, it will do little to address the supply and demand imbalance and the problem of affordability that many are already facing.”
Group CEO of Enness Global Mortgages, Islay Robinson, commented: “The government has mostly ignored the top end of the market in recent years and this has had a detrimental impact on demand and property values in the prime London market, in particular.
“Today has been much of the same and although high-end homebuyers will enjoy some form of discount where stamp duty is concerned, it’s looking unlikely that this will apply to second homes and they certainly won’t be getting any richer thanks to Rishi.
“In fact, this archaic tax continues to leave a bad taste in the mouth of prime buyers who are paying huge sums in addition to the value of their chosen property, and it’s about time this government money grab is abolished altogether.”
Jamie Cooke, Managing Director of iamsold which is one of the UK’s largest property auctioneers, said: “This is massively positive for the property sector. The market return since the easing of lockdown has been strong, and this is a good move from the Government to help to sustain the positive sentiment. As for auction, this could see a strong return of by-to-let investors who are perhaps sitting on cash reserves, although we assume the three per cent investor surcharge will remain.
“It could also see a further increase of stock to market as people who were waiting until next year to sell their home may now make the decision to do it sooner and benefit from the holiday. This should mean there’s more stock to equal the rising demand across the industry as a whole, however if there’s a flood of stock it could have an impact on house prices. The industries supporting the sector will also feel the benefits as additional cash will be available for homeowners to spend elsewhere on things like refurbishments, extensions and new furniture.”
Stamp Duty Holiday Masks the Risk of a Fall
Reaction from Blick Rothenberg – a national accounting, tax and advisory practice
Today’s announcement was leaked widely, and it looks like the Chancellor gave in to pressure to launch the holiday now rather than in the autumn. It is headline-grabbing stuff and will please many, particularly in the north. But evidence from previous stamp duty holidays shows that it is unlikely to increase sales volumes and will merely bring them forward. The end of the holiday was expected to coincide with a significant fall in the market. That would have made the fall even greater. It is good, therefore, that the holiday is longer than expected at eight months. But even eight months will be too short unless there really is a “V” shaped recovery.
The holiday means that most house purchases are now exempt from stamp duty, certainly based on the average home-mover and downsizer and those in the north of the country. Those moving in London and the south-east will benefit by up to £15,000 but are likely to have to pay some tax due to the significantly higher property values in these regions.
|Amount (£)||Stamp Duty Was
|Stamp Duty Is
|Average first-time buyer||220,000||0||0||0|
|Average house price (UK)||231,000||2,120||0||2,120|
|Average house price (London)||540,000||17,000||2,000||15,000|
Past experience shows us that sellers tend to benefit stamp duty holidays, enjoying on average almost half of the saving.
Agents will be delighted. The combination of a stamp duty holiday and pressure on non-residents to complete before the two per cent surcharge kicks in next April will give those that were contemplating buying this year a real incentive to act. Those that are wary of a possible ten per cent fall in the market, prompted by the deepest global rescission since records began and rising unemployment, are unlikely to change their plans until confidence returns. The Chancellor has put a mask on the face of the housing market. The real story is what will the face look like when it is lifted. That depends on the success of the plan for jobs announced today.
Emergency VAT cut: Pubs should prepare for three different rates
Following the announcement of the emergency VAT cut for hospitality and tourism, Alison Horner, indirect tax partner at MHA MacIntyre Hudson, says businesses need to prepare carefully as quick VAT cuts can cause an administrative tangle.
She said: “The emergency VAT cut is great news for travel and tourism but sudden VAT cuts always raise substantial administrative issues. Businesses must get on top of their preparation. In this case any premise serving alcohol will have to re-programme its tills to deal with three different VAT rates: one for alcohol at 20%, one for cold take-away food at 0% and 5% for everything else.
“In the past lack of preparation led to disaster. For example, the UK experimented with a VAT cut in response to the 2008 financial crisis which caused chaos for retailers. Some supermarkets were assured by HMRC that altering their prices would take only a few hours, but instead, they spent over a week in a crisis mode.
“Businesses need time to prepare but the Chancellor can’t give them too much time, or the anticipation of lower prices will lead to a slump in demand. The Chancellor was probably right to pick Wednesday 15 July as the date to introduce the cut; it hopefully gives business just long enough to sort this out.”