The Chancellor’s latest budget has introduced significant updates to Stamp Duty Land Tax (SDLT) that will impact both homebuyers and property investors across England. It’s important when going into a property whether that be investing or a first-time buyer to understand the new changes, below we have prepared a comprehensive overview to help you navigate these developments.
What is meant by Stamp Duty?
SDLT is a tax levied by HMRC on houses and land purchases in England. The SDLT rate varies based on factors like the property’s purpose and the buyer’s ownership status. For example, first-time buyers enjoy lower SDLT rates compared to those purchasing second homes or investment properties.
SDLT is calculated using a tiered system, with progressively higher rates applied to higher portions of a property’s purchase price. This structure means the total SDLT cost can add up quickly, especially for higher-value transactions.
Key changes in the Autumn 2024 budget
The latest budget has introduced several notable SDLT changes, the most significant being an increase in the surcharge for second homes and investment properties.
The surcharge for second homes and investment properties increased as of 31 October 2024, the SDLT surcharge for second homes, buy-to-let, and company buys has risen from 3% to 5%. This means:
- For a £300,000 second home, the SDLT rate will rise from 8% to 10% on the total above £250,000.
- On a £500,000 investment property, the SDLT will climb from £15,000 (3% surcharge) to £25,000 (5% surcharge).
The new SDLT rates for second homes and investment properties will be:
- Up to £250,000: 5%
- £250,001 to £925,000: 10%
- £925,001 to £1.5 million: 15%
- Over £1.5 million: 17%
These changes significantly increase the cost of investing in additional properties, which may impact the affordability of buy-to-let and other investment purchases.
Reversion of the main residence threshold increased in September 2022
The Government temporarily increased the SDLT threshold for main residences to £250,000. However, this change is listed to expire on 31 March 2025, reverting the standard SDLT thresholds to pre-2022 levels:
- Up to £125,000: 0%
- £125,001 to £250,000: 2%
- £250,001 to £925,000: 5%
- £925,001 to £1.5 million: 10%
- Over £1.5 million: 12%
Buyers who are in the process of purchasing or planning to buy a home may wish to time their transactions to benefit from the current, more favourable SDLT rates before the March 2025 deadline.
Reduced first-time buyer relief threshold
The autumn budget also affects those purchasing a house for the first time by lowering the SDLT relief threshold. Currently set at £625,000, this threshold will revert to £300,000 from 31 March 2025 onwards. The SDLT fees for first-time buyers after this date will be:
- Up to £300,000: 0%
- £300,001 to £500,000: 5%
This change means first-time buyers purchasing properties above £300,000 will face additional SDLT costs that were previously exempt.
Implications for buyers and investors
The Government’s SDLT changes signal an intention to cool certain segments of the property market, particularly for second-home and investment purchases. Buyers and investors will need to carefully assess the financial impact of these updates when planning their transactions.
Some key considerations include:
- Buyer status: Understanding whether you’re a first-time buyer, second-home purchaser, or investor is crucial for determining the applicable SDLT rate.
- Timing: Accelerating transactions to complete before the March 2025 deadline could help buyers avoid the reversion to lower SDLT thresholds.
- Budget and affordability: The increased SDLT surcharge for second homes and investments may affect purchase decisions and portfolio expansion plans.
Comment
Our Residential Property team can provide tailored guidance to help you navigate these SDLT changes and ensure your property transactions are structured effectively. We encourage you to reach out to us to discuss your specific needs and how we can support you.
How can we help?
Gayle Fordham is a Partner and Head of our Residential Conveyancing team.
If you have any queries on the above subject, please do not hesitate to get in touch with Gayle on 01206 835225 or complete our online enquiry form.