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STAMP DUTY HOLIDAY EXTENSION: MY ANALYSIS

Published: 03/03/2021

Stamp Duty Holiday Extension:  My Analysis

It speaks volumes that reports confirming that the stamp duty holiday would be extended a further three months came before today’s Budget. Pressure had been mounting – both from the property industry itself and would-be buyers, anxious that their purchase may just fall short of the deadline. And so, it comes with a sigh of relief that the housing market can continue to operate with this tax break until the end of June.

But what exactly does this mean in practice?
The stamp duty holiday, which temporarily increased the nil rate band threshold at which tax is due to £500,000, had given home movers an incentive to buy since July 2020, offering savings of up to £15,000. The intended rise in demand from such a tax break more than delivered – so much so, that the entire property buying process has been faced with significant delays. According to View My Chain, property transactions are taking an average of 22 weeks from sale to completion, compared to 14 weeks in 2019.  

This would all be an accepted part and parcel of the scheme if a deadline hadn’t been looming, potentially freezing out buyers mid-way through the process of actually realising the stamp duty savings that convinced them to move in the first place. In real terms, this could very easily have led to buyers pulling out, triggering a significant drop in house prices.

So, yes, with provisional figures from HMRC showing a hefty 129,400 transactions in the month of December alone, a year-on-year rise of 8.5% in house prices according to data from the Land Registry and Zoopla estimates that it will have helped 740,000 buyers in total, the stamp duty holiday scheme can most certainly be hailed a success – boosting the economy substantially throughout the pandemic. But how it ends is just as important – if not more – than the frenzied months leading up to it.

That’s why the three-month extension has been received with open arms. Of course, no one can reasonably expect this tax break to last indefinitely (although it would be nice, wouldn’t it?), but without this new buffer, as many as 70,000 sales that were agreed in 2020 would otherwise have been in danger of missing out, according to Zoopla. This way, all those mid-way through the process have a little longer to get over the finish line.

Hopes, petitions and rallied cries were for a six-week extension, so the fact that Rishi Sunak has doubled this to 12 weeks should give ample time for all those who have not yet managed to complete their 2020 deal. What’s more, Rishi also announced that after the end of June, in order to smooth the transition back to normal, the nil rate band will be reduced to £250,000 until the end of September, and will only return to the usual level of £125,000 from 1 October.

With estimates by Rightmove that an additional 120,000 – 160,000 property transactions in England would benefit from a six-week extension, saving a total of £1bn, the added impetus to the economy as a whole following a 12-week extension will surely be a welcome one.