When it comes to addressing the current housing crisis in the UK and making property transactions more affordable, stamp duty has long been a topic for discussion, especially when it comes to first-time buyers trying to get a foot on the property ladder.
With this in mind, we consider proposals from the property sector and the outcomes from the Chancellor’s Spring Budget on 6 March 2024 to see what the year ahead has in store for us when it comes to property tax reform and stamp duty in particular.
What is stamp duty?
Stamp duty in the UK, officially known as stamp duty land tax (SDLT), is a tax imposed on the purchase of property or land. The buyer typically pays stamp duty, and it’s a significant source of revenue for the government. The amount of stamp duty payable is dependent on several factors.
Stamp duty rates vary based on the purchase price of the property or land and the type of buyer. Historically, stamp duty was a tax on documents, but in modern times, it primarily applies to property transactions. The rates can also differ across different parts of the UK, as Scotland and Wales have their own systems for property taxation known as Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT), respectively. These taxes also operate on a sliding scale based on property value.
In England and Northern Ireland, the stamp duty rates are as follows for residential property:
- Properties costing up to £125,000: 0%
- Properties costing £125,001 to £250,000: 2%
- Properties costing £250,001 to £925,000: 5%
- Properties costing £925,001 to £1.5 million: 10%
- Properties costing above £1.5 million: 12%
For second homes or buy-to-let properties, an additional 3% surcharge applies to each band and if you’re not a UK resident you generally pay an additional 2% surcharge.
As an incentive for first time buyers, properties under a certain value can be purchased with a reduced stamp duty rate, or even an exemption. The first time buyer nil rate for stamp duty is currently set at £425,000. However, this is due to revert to the previous amount of £300,000 from 31 March 2025. For properties costing £425,001 – £625,000, 5% stamp duty is payable on the amount over £425,000 only. First time buyers purchasing a property which costs over £625,000 are not eligible for any first-time buyer tax relief.
What was the stamp duty holiday?
In July 2020, the UK government announced a temporary stamp duty holiday, due to the COVID-19 pandemic. The threshold at which the tax is payable on property purchases in England and Northern Ireland was raised from £125,000 to £500,000, resulting in big potential savings for homebuyers and an exemption for many.
This stamp duty holiday was extended several times and was set to end on 31 March 2021, although it was later extended until September 30, 2021. Following the expiration of the stamp duty holiday and its reinvigoration of the housing market, there have been a number of debates about potential reforms to the stamp duty system as part of wider reforms of the housing market.
What are the potential reforms to the housing sector which have been suggested in 2024?
Both homebuyers and industry insiders like Rightmove and the Homeowners Alliance, have sought reforms to the housing sector, with many critiquing the current arrangements for stamp duty. Indeed, there have been many calls for a complete abolishment of the tax altogether to make it more affordable for UK residents to buy homes at a point where many feel trapped in an ever more expensive rental market.
Prior to the Budget being announced on 6 March some of the following reforms to the housing sector were suggested:
- Regional variations for stamp duty fees – To take into account the vast difference in house prices in London compared to the rest of the UK.
- Retaining the higher first time buyer nil rate for stamp duty – So that the rate remains at a more realistic £425,000 after 31 March 2025.
- Scrapping stamp duty for downsizers – Research from the London School of Economics and University of Sheffield has noted the lack of financial incentives and high moving costs, particularly stamp duty payments, which put older homeowners off downsizing.
- 99% mortgages – Allowing first-time buyers who have long proven their ability to meet their monthly repayments in the private rental sector to pay a more affordable 1% deposit.
- Further grants or tax saving incentives for landlords to make their properties ‘greener’ – In an effort to improve the quality and energy efficiency of the property for the benefit of their tenants.
- New first-time buyer schemes or initiatives – Since the closure of the Help to Buy Equity Loan there has been limited help for first-time buyers keen to get on the housing ladder.
- Changes to lifetime ISA price limits and withdrawal penalties – Currently a penalty fee of 6.25% must be paid by first-time buyers who wish to withdraw savings from a Lifetime ISA (LISA) if they are buying a property which costs more than the scheme’s £450,000 price limit.
What did the Budget actually deliver when it comes to the housing market?
Whilst the biggest tax news from the Spring Budget was undoubtedly the abolition of the “Non Dom” tax status as of April 2025, unfortunately the focus on housing reform and property taxation was much more limited, despite the Chancellor’s pledge to “build homes for young people” as a priority.
Sadly, there were no substantial changes to stamp duty land tax when it comes to first-time buyers or those who are downsizing. None of the other suggested reforms above have been implemented either.
Instead, the government has announced funding for thousands of new homes in the capital, cut the highest rate of capital gains tax on residential property sales by 4% and will end the tax relief for multiple-dwelling purchases from 1 June 2024.
This multiple-dwelling tax relief applies when an individual acquires more than one property within the same transaction, such as a number of flats within a single block.
At present, buyers purchasing more than one property at once pay stamp duty based on the average price of each separate property purchased, rather than the total transaction value, thereby reducing their tax liability.
For instance, if you were to purchase four flats for a collective total of £1 million, your stamp duty fee is currently calculated on the cost of each separate purchase price of £250,000. However, as of June 2024, it would be calculated based on the entire £1 million purchase price, which means a considerably higher tax liability.
What are Labour’s plans?
Should they win the next general election, Labour certainly have some changes planned when it comes to tax arrangements, although again, plans to reform the housing sector and stamp duty tax in particular are limited so far.
At the Labour party conference in October 2023, the shadow Chancellor, Rachel Reeves, pledged to increase the tax on overseas nationals buying UK properties. This would mean a further fee of 2% in addition to the existing tax on residential properties paid by overseas buyers. Unfortunately, no plans have been announced to reduce the rates of stamp duty for UK homebuyers or even abolish the tax altogether.
So, it would seem that whichever political party is in power in 2024 and beyond, there is certainly more work to be done when it comes to reforming stamp duty and the UK housing market.
