On 17 July 2020, the second reading of the Stamp Duty Land Tax (Temporary Relief) Bill is scheduled to take place in the House of Lords. The bill would temporarily reduce the amount of stamp duty paid on residential properties in England and Northern Ireland as part of the Government’s response to the Covid-19 pandemic. This In Focus considers the background to the bill, the bill itself and the reaction to it.
What is stamp duty?
In England and Northern Ireland, the Government charges a stamp duty land tax (SDLT) on certain land and property transactions. Generally, it is charged on increasing portions of the property price above a nil rate band. An additional rate of SDLT is charged if someone purchases a further property, meaning they own more than one. In 2018/19, SDLT raised £11.9 billion for the Treasury.
What is the background to the bill?
Impact of the Covid-19 pandemic on the property market
On 26 March 2020, the UK Government introduced social distancing measures for the property market as part of its larger response to the Covid-19 pandemic. These measures remained in place until 13 May 2020, when the Government eased restrictions, allowing market activity in England to re-commence under restricted conditions.
As a result of restrictions, in April 2020, residential property sales in the UK hit their lowest monthly level since comparable records began in 2005. While data for May 2020 showed more sales being made than in the previous month (+16%), the level was still 49.6% lower than seen in May 2019.
Chancellor’s statement: 8 July 2020
On 8 July 2020, the Chancellor of the Exchequer, Rishi Sunak, made a statement to the House of Commons on the economy. In his speech, Mr Sunak set out a series of measures to “protect our economy”. As part of this, he announced an immediate cut to SDLT until 31 March 2021. The Treasury has estimated that the policy will cost the Treasury £3.8 billion.
Information published on the Government’s website the same day set out the changes in full for the different types of buyer:
Residential rates on purchases from 8 July 2020 to 31 March 2021
| Property or lease premium or transfer value | SDLT rate |
| Up to £500,000 | Zero |
| The next £450,000 (the portion from £500,001 to £925,000) | 5% |
| The next £575,000 (the portion from £925,001 to £1.5 million) | 10% |
| The remaining amount (the portion above £1.5 million) | 12% |
The Government said that for the period stated, these rates would also apply to first time buyers. An SDLT calculator on the Government’s website helps buyers and sellers to determine how much would be payable on a specific transaction.
Higher rates for additional properties
For purchases of additional properties, the Government set out the following rates:
| Property or lease premium or transfer value | SDLT rate |
| Up to £500,000 | 3% |
| The next £425,000 (the portion from £500,001 to £925,000) | 8% |
| The next £575,000 (the portion from £925,001 to £1.5 million) | 13% |
| The remaining amount (the portion above £1.5 million) | 15% |
New leasehold sales and transfers
The Government also said the nil rate band that applies to the ‘net present value’ of any rents payable for residential property would also be increased to £500,000 for the same period.
| Net present value of any rent | SDLT rate |
| Up to £500,000 | Zero |
| Over £500,000 | 1% |
In addition, the Government said that companies as well as individuals buying property worth less than £500,000 would benefit from these changes, as will companies that buy residential property of any value where they meet the relief conditions from the corporate 15% SDLT charge.
Rates prior to the Chancellor’s statement
On 1 April 2021, the rates shown in the above tables will revert to the rates that were in place prior to 8 July 2020:
Freehold sales and transfers
| Property or lease premium or transfer value | SDLT rate |
| Up to £125,000 | Zero |
| The next £125,000 (the portion from £125,001 to £250,000) | 2% |
| The next £675,000 (the portion from £250,001 to £925,000) | 5% |
| The next £575,000 (the portion from £925,001 to £1.5 million) | 10% |
| The remaining amount (the portion above £1.5 million) | 12% |
New leasehold sales and transfers
When buying a new residential leasehold property, you paid SDLT on the purchase price of the lease using the rates set out in the freehold sales and transfers table above. If the total rent over the life of the lease (known as the ‘net present value’) was more than £125,000, you also paid SDLT of 1% on the portion over £125,000, unless you bought an existing assigned lease.
Higher rates for additional properties
If buying a new property meant you owned more than one, you paid 3% on top of the normal SDLT rates. However, you did not have to pay this if the property bought replaced your main residence that had already been sold. In cases where the previous residence had not been sold on the day the new purchase was completed, you could apply for a refund if you sold your previous property within 36 months (there are also some circumstances where you could get a refund after the 36 months deadline).
Rates on first homes
The rates were different for those purchasing first homes, with buyers able to claim a discount. You did not pay any tax up to £300,000, and 5% on the portion from £300,001 to £500,000. However, if the price was over £500,000, the rules for those who’ve bought a home before applied.
Implementation of the changes
Following the Chancellor’s statement, Mr Sunak moved a motion under section 5 of the Provisional Collection of Taxes Act 1968, which gave immediate effect to the changes. The House of Commons agreed this motion. In a letter to the chair of the Treasury Select Committee, Mr Sunak confirmed that the motion would provide interim authority for the change until “resolutions are debated in Parliament at a later date”.
Stamp Duty Land Tax (Temporary Relief) Bill 2019–21
On 13 July 2020, the Government introduced the Stamp Duty Land Tax (Temporary Relief) Bill in the House of Commons. The provisions in the bill would apply to England and Northern Ireland.
It is a ‘money bill’ and can therefore receive royal assent without being passed by the House of Lords. In addition, the House of Commons is not obliged to consider any amendments made by the Lords. It is normal practice for such bills not to be committed to a committee stage in the Lords, instead going directly from second to third reading.
What would the bill do?
The bill consists of two clauses. Clause 1 would modify part 4 of the Finance Act 2003 to implement the changes set out in the Chancellor’s statement (as outlined above). Clause two would provide for the bill’s short title.
What happened in the House of Commons?
The bill completed all its stages in the House of Commons on 13 July 2020. Introducing the bill at second reading, John Glen, Economic Secretary to the Treasury, said:
With restrictions easing, the Government have been able to reopen the housing market, and there are signs of tentative movement. Transactions in May were 16% higher than in April. It is crucial to our recovery that we maintain this momentum. People should feel confident to move, to buy, to sell, and to renovate and improve their homes. This is why the Government are cutting stamp duty land tax by temporarily increasing the nil rate band for residential property from £125,000 to £500,000, with effect from last Wednesday—8 July—until 31 March 2021.
It received broad support; however, several issues were raised.
Speaking for the Opposition, the Shadow Financial Secretary to the Treasury, Dan Carden, argued that the Government had not given careful consideration to the bill or its impact on the housing market. However, he said that rather than opposing the bill, “we want to probe the Government on who will benefit the most from it”.
Highlighting Labour’s concerns, Mr Carden questioned whether the bill would target support at those who need it most, particularly focusing on the support included for second home owners:
The provisions in the bill are an unnecessary subsidy for second homeowners that will only worsen the housing crisis by reducing the supply of homes overall.
He also raised “serious concerns about the cost to the Exchequer and whether it is justifiable in terms of the Government’s other spending priorities”. In addition, he questioned whether the bill would remove “one of the few advantages that first-time buyers have” and argued that it did not address the other reasons why house sales are depressed, such as the difficulty of getting a mortgage.
Several Liberal Democrat MPs also raised concerns about the bill, including that other sectors are more in need of government support and that it will not solve long-term issues with the housing market.
Responding to the concerns raised about whether the policy was designed to benefit second home owners, Jesse Norman, Financial Secretary to the Treasury, said:
It is quite untrue to suggest that the measure will disproportionately benefit second home owners. Although those buying second homes or buy-to-let properties will benefit, and make a very important economic contribution in so doing, they will continue to pay an additional 3% on top of the standard stamp duty land tax rates.
Following second reading, committee stage took place in committee of the whole house. Only one amendment was tabled and discussed by MPs, however, it was not divided on. The amendment, tabled by Labour, would have required the Chancellor to lay a review of the impact of the Act on various groups—including first-time buyers and buy-to-let investors—before the House of Commons within three months of the bill receiving royal assent.
Commenting on the amendment, Dan Carden said that it would answer the questions Labour had as to who will benefit most from the bill. Speaking for the Government, Jesse Norman rejected the amendment. He said that HM Revenue and Customs routinely published statistics and analysis of stamp duty land tax data. The Government would closely monitor those statistics and keep stamp duty policy under constant review.
Because no amendments were made at committee stage, the bill was not debated at report stage. At third reading, the Opposition repeated their stance that they would not oppose the bill despite concerns about it. The bill was passed without division.
What has been said about the policy?
Commenting on the changes, Neal Hudson, director at market research company Residential Analysts, has said the announcement represented a reversal in housing policy:
The previous focus on first-time buyers and home ownership has been set aside and the priority now appears to be supporting transactions, irrespective of who is buying.
Examining the scale of the change, the Resolution Foundation has said that the stamp duty holiday is more extensive in both scale and length than in 2008.
A good idea?
Dominic Agace, the chief executive of Winkworth estate agents, welcomed the move, arguing that it will benefit first-time buyers and movers. Nick Leeming, chairman of Jackson-Stops agency, was also positive about the changes, arguing that stamp duty had previously put off buyers:
Sunak’s stamp duty reform has come at the right time and will have an immediate impact on the volume of sales agreed in the coming weeks.
Nitesh Patel, Yorkshire Building Society’s strategic economist, agreed that more homes will come onto the market because of the cut. However, he also argued that the policy is “likely to be a sticking plaster for the immediate issues around confidence in the housing market”, rather than a long-term solution. Property firm Hamptons International also argued that “it’s no magic fix in the long-term”.
In addition, Tim Walford-Fitzgerald, private client partner at accountancy firm HW Fisher, has argued the reduction may not create the confidence needed to make a purchase:
There is more to consider—mortgage availability, rising house prices, economic growth and overall market confidence are critical factors and the Chancellor should not forget that.
Michael Hewson, chief analyst at CMC Markets, agreed. He said that it was questionable whether the policy “will have the effect people think it will, given that economic uncertainty tends to temper the appetite of most people to make large-scale changes of this kind”.
Others have questioned whether the Government is spending money in the right area. For example, Carys Roberts, executive director of IPPR, has said that while the change is good news for estate agents and homeowners looking to move, it would push up prices and amounts to more than all of the support announced for young people. Russell Gunson, director of IPPR Scotland, has also raised this concern:
It’s disappointing that the amount of money spent on reducing stamp duty in England is more than the increases in spending proposed to tackle youth unemployment.
Who will benefit?
Focusing on who the policy will benefit, Marc Selby, chair of the property taxes committee at the Chartered Institute of Taxation, has said that the move should revive the housing market but claimed “the jury is out on whether it will mostly benefit buyers or sellers”. Rather, he argued that in practice it may “simply stabilise prices”.
Some commentators have argued that it is a matter of geography, with buyers and sellers in London and the South East set to benefit the most from the changes. For example, the Resolution Foundation has said that:
A non-first time buyer purchasing a home at the average English house price will save £2,500 as a result of the stamp duty holiday. But the average buyer in the North East will see no gain, while in London they would be more than £14k better off.
Hamptons International and Rightmove have also agreed those in London will see the biggest savings.
In addition, Steve Olejnik, managing director of mortgage broker Mortgages for Business, has said the announcement was “great news” for landlord investors. He argued that it would likely lead to a rise in individual buy-to-let landlords transferring their properties to a limited company structure to take advantage of tax relief on mortgage interest, since a transfer would normally incur a stamp duty charge. Analysis by Hamptons International has also found that landlords would save an average of £1,840 across England, with those in London typically saving £7,240.
However, Labour has criticised the benefits for buy-to-let properties and second homes. In a letter to the Housing Secretary, Robert Jenrick, Labour, called for the exclusion of second properties from the stamp duty cut, arguing that this could instead be used to fund the immediate gap in local councils’ finances. Commenting on the issues, Thangam Debbonaire, Labour’s Shadow Housing Secretary said:
It is unacceptable that the Chancellor tried to sneak out this huge bung to second home owners and landlords while millions of people are desperate for support. He should be targeting support to those who need it, not helping people invest in buy-to-let properties and holiday homes.
What are the potential pitfalls?
Commentators have raised concerns about the 31 March 2021 deadline. Helen Miller, deputy director of the Institute for Fiscal Studies, has argued that if the economy has not recovered and people have brought forward transactions, “this could lead to a depression of housing sales while the economy is still weak”.
Ms Miller also highlighted that the change could see first-time buyers losing an edge in the housing market:
When there is a tax break, it can lead to the price of houses going up, so sellers can benefit. When the break was just for first-time buyers, it was more likely they would retain some of that benefit. Now it is across the whole market, it is more likely that prices will rise, so first-time buyers could be left keeping less of the discount.
The Resolution Foundation agreed, arguing that the decision has temporarily removed “one of the few advantages young people had in the housing market”.
Read more
- Explanatory notes (prepared by HM Revenue and Customs)
- House of Commons Library, Stamp Duty Land Tax on Residential Property, 10 July 2020
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