Chancellor of the Exchequer Rishi Sunak has cut the threshold at which homebuyers in England and Northern Ireland are required to pay Stamp Duty Land Tax (SDLT).
It is hoped that the rise will stimulate the country’s housing market and the UK economy as a result.
He announced he has decided to cut stamp duty, telling the Commons: "Right now, there is no stamp duty on transactions below £125,000.
"Today, I am increasing the threshold to £500,000. This will be a temporary cut running until March 31 2021 - and, as is always the case, these changes to stamp duty will take effect immediately.
"The average stamp duty bill will fall by £4,500. And nearly nine out of 10 people buying a main home this year, will pay no stamp duty at all."
But how does the property tax work?
What is stamp duty?
Stamp duty is a tax levied on property purchases.
In England and Northern Ireland homebuyers are required to pay the tax when they buy a residential property costing more than £125,000. This dips to £40,000 for those buying a second home.
The tax applies to both those who are buying a property outright or taking out a mortgage.
Is there an equivalent in Scotland?
Yes, in Scotland homebuyers are required to pay Land and Buildings Transaction Tax (LBTT).
Homebuyers in Scotland are required to pay LBTT on properties over £140,000.
Current stamp duty rates
Prior to Rishi Sunak’s update stamp duty thresholds were as follows:
- Zero percent up to £125,000
- Two percent of the next £125,000 (the portion from £125,001 to £250,000)
- Five percent of the next £675,000 (the portion from £250,001 to £925,000)
- Ten percent of the next £575,000 (the portion from £925,001 to £1.5 million)
- 12% of the remaining amount (the portion above £1.5 million)
First-time buyers are not required to pay stamp duty for purchases below £500,000
You’ll usually have to pay 3% on top of the normal SDLT rates if buying a new residential property means you’ll own more than one.
Current LBTT rates
LBTT thresholds in Scotland are as follows:
- 0% up to £145,000
- 2% £145,001 to £250,000
- 5% £250,001 to £325,000
- 10% £325,001 to £750,000
- 12% over £750,000
Since 30 June 2018, first-time buyers in Scotland have not been required to pay stamp duty on a property purchase up to £175,000
Why do we pay stamp duty?
Stamp duty was originally introduced in England in 1694 as a measure to raise funds for the war against France and applied to property and some documents.
Described as “an act for granting to their Majesties several duties upon vellum, parchment and paper, for four years, towards carrying on the war against France”, the tax proved successful and has remained in some form since due to its efficiency in raising money.
Through the years the tax has been applied to all manner of objects including dice and playing cards, but today it is only associated with the purchase or property and stocks and shares.
Stamp Duty Land Tax was increased in 2003 and is a form of transfer tax on land transactions.
LBTT was introduced in Scotland in 2015 replacing Stamp Duty Land Tax.