Taxes to consider when moving home

A property tax shake-up fuels a house buying surge.

If you are considering moving home in the second half of 2020/21, you are by no means alone.

In the month leading up to 8 August 2020, 149,000 properties were put on the market – the highest number since before the financial crash in 2008.

This might be attributed to the pent-up demand caused by the lockdown, as well as owners falling out of love with their home after being confined to it for so many months.

But Chancellor Rishi Sunak’s cut to stamp duty land tax (SDLT) announced in July 2020 will have persuaded many people who had been thinking about a move that now is a good time to do it.

Despite the headline of a stamp duty holiday in England and Northern Ireland, it does not mean in every case there will be no tax to pay, while SDLT does not apply in Scotland or Wales.

We look at how the stamp duty holiday works, as well as other tax considerations. On residential property transactions we are talking about the potential for SDLT on the purchase and capital gains tax on the sale.

It is worth flagging up that these are rather different depending on whether you are dealing with your own primary residence, or it is some other kind, such as investment property or perhaps a holiday home.

Stamp duty land tax

On 8 July 2020, the SDLT threshold increased to £500,000 with immediate effect until 31 March 2021.

It is said to take stamp duty out of the equation for 90% of people buying a home, and even if you are one of the remainder who do pay some tax, you will enjoy a saving, said to be on average £4,500.

No wonder the housing market is turbocharged right now.

So, once the £500,000 value is exceeded, tax becomes payable on a sliding scale:

  • Up to £500,000 – 0%
  • Over £500,000 to £925,000 – 5%
  • Over £925,000 to £1.5 million – 10%
  • Above £1.5 million – 12%

Previously, first-time buyers were afforded a special discount. This new general discount supersedes this arrangement during the qualifying period and applies to both first-time buyers and those who have owned a property before.

So, if you are buying a house as a primary residence, and disposing of your previous one, for £480,000 you will pay no SDLT. If you are buying one for £615,000 you will pay £5,750 SDLT (5% of the £115,000 excess over £500,000).

If you are buying an additional property, perhaps a holiday home or part of a buy-to-let portfolio, you still benefit from this SDLT holiday. But as before the announcement, a 3% surcharge applies. Therefore, the sliding scale for additional properties is as follows:

  • Up to £500,000 – 3%
  • Over £500,000 to £925,000 – 8%
  • Over £925,000 to £1.5 million – 13%
  • Above £1.5 million – 15%

Using the same examples as for the £480,000 primary residence above, but for an investment property, the SDLT would be £14,400 (3% of £480,000). And for the £615,000 property, it would be £24,200 (3% of £500,000, plus 8% of £115,000).

In conclusion on SDLT, it is good news with reductions enjoyed all-round, but some (even significant) tax may still be payable.

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