What does the stamp duty holiday mean for property investors?

Updated: Dec 6, 2020

HMRC property taxes stamp duty holiday

Rishi Sunak announced a stamp duty holiday in his summer statement in a bid to “catalyse the housing market and boost confidence” after turbulent few months for the economy due to the Coronavirus lockdown. It came as part of another stimulus package thought to add a further £30bn to the government’s spending during the pandemic. 

Stamp duty land tax (SDLT) is a property transaction tax that is normally payable on all residential properties over £125,000 in England and Northern Ireland. The temporary changes, which are effective immediately, mean that home buyers will pay no stamp duty on properties up to £500,000 between now and March 2021. This could save some buyers as much as £15,000 according to analysts. Different stamp duty thresholds apply in Scotland and Wales, whose devolved governments are yet to announce if they will introduce similar measures. 

Since the announcement, property investors have been asking whether the stamp duty holiday will apply to them, whether it can be backdated, and how the market will respond. There has also been plenty of speculation about what will happen when rates go back up next year. 

Do property investors get a stamp duty holiday?

The Treasury has confirmed that property investors and people buying second homes are also set to benefit from the government’s measures, although they will still pay a 3% surcharge above the standard residential rates. Unfortunately for buyers who completed during the lockdown, it does not seem likely the holiday will be backdated, meaning they would not be entitled to a refund. 

How much property investors will save from the stamp duty holiday depends on the type of investment and area of the country they are buying in. Many will see no benefit at all. The biggest savings can be made when buying properties over £500k, although that will only affect a relatively small percentage of UK investors and may be seen as a green light for overseas investors before the additional 2% surcharge hits them in April 2021. Purchases between £250,000 and £500,000 will also make a sizeable saving, which will please investors in the South and those buying larger properties for capital growth, to flip or turn into HMOs (houses of multiple occupancy) or serviced accommodation. However buy-to-let investors buying lower priced properties in the North of England, where yields are higher, will be unaffected by the changes as properties priced below £125,000 will remain 3% SDLT and 0% for properties under £40,000. 

Labour’s shadow housing secretary Thangam Debbonaire criticised the government for providing a “bung” for investors and second homeowners and called for them to reverse their decision, although that is unlikely. 

Stamp duty holiday price brackets comparison

Opportunity to transfer ownership to a company structure

The move to include investment properties has provided a window for landlords to transfer ownership of portfolios owned in their own name to a Limited company. The recently introduced Section 24 legislation, which removed mortgage interest and other finance costs from a landlord’s tax deductible expenses, has increased tax liabilities for many investors who have historically bought in their own name. This has reduced profitability of buy to let properties for many landlords, forcing them to sell-off portfolios or consider early retirement. 

Since the legislation does not apply to property owned in a Limited company, it is seen by some as a way to incentivise property ownership within a company structure, which provides HMRC with greater visibility over landlord’s accounts. However, moving existing property portfolios from being privately owned into a limited liability company is expensive, since it is subject to stamp duty at its market value. This has been made more viable during this period of rate reductions, and many may see it as a good opportunity to do so. This may have even been part of the government’s strategy when deciding to extend the holiday to investors. 

How will the SDLT holiday affect house prices?

Competition for properties in some areas during the temporary holiday could drive up house prices as more people bring forward plans to buy. On the day of the announcement, Rightmove reported record website traffic as homebuyers looked to cash in on the tax break. 

Among the voices of concern is London tax barrister Patrick Cannon, who warned that a similar stamp duty holiday in 1992 led to vendors raising their asking prices by “roughly the same amount as the tax saving” which worked out as a “subsidy to sellers, at the cost of the taxpayer”. He also recalled “prices fell to reflect the re-imposition of the tax” which resulted in some people falling into negative equity. 

It’s also a blow for first time home buyers, who did not previously pay SDLT on homes up to £300,000 (or £500,000 in London) so will lose their advantage over others in the market and may miss out due to the additional competition driving up prices.

What do you think about the stamp duty holiday? Tell us how you think it will affect investors and the property market in the comments below.  

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