How will the increase in SDLT on 1st April Impact the Market?
Written on 3 January 2025 by
The increased Stamp Duty Land Tax rates from 1st April 2025 only apply in England & Wales but although no one likes paying more tax than they have to, it is important to recognise that the maximum extra SDLT movers will pay after 31st March 2025 will be £2,500. As an example, on a £500,000 property this is only 0.5% of the purchase price and so even a small decline in prices would make rushing to beat the 31st March deadline a false economy.
However, the situation is different for FTBs – some will pay much more SDLT after 31st March, especially if their purchase price is above £500,000, whereas others will still pay nothing.
FTBs buying up to £300,000 will not pay any SDLT, as now, and so have no deadline to worry about. But those fortunate enough to be able to buy a property for £625,000 or more will see their tax bill increase by £11,250.
After 31st March FTBs completing on a purchase at than £300,000, but not more than £500,000, will pay 5% SDLT on the amount in excess of £300,000, compared to the current position where the 5% tax only applies above £425,000. For FTBs buying at over £500,000 but not more than £625,000 the situation is even worse as the reduced FTB tax rates will cease to apply on purchases over £500,000, whereas until 31st March purchases up to £625,000 qualify for the lower FTB rates.
Therefore for some FTBs beating the 31st March deadline will be important. However, as many transactions, especially if there is a chain, take more than 3 months to complete, buyers who have not already found a property need to be realistic on whether completion by 31st March is likely.
Buyers should also reflect on the fact that purchase activity will decline as we get closer to 31st March and completion by then becomes impossible. This should result in less competition from other buyers and so present better opportunities to negotiate on price.
The most recent examples of an increase in SDLT rates were on 1st July 2021 and 1st October 2021, when the temporary nil rate band of £500,000 introduced in July 2020 to stimulate the market after COVID was reduced in 2 stages, initially to £250.000 on 1st July and then back to the original £125,000 on 1st October. The SDLT rate from £250.000 to £500,000 was 5% and so the reduced nil rate band increased the tax payable by £12,500 on 1st July for anyone buying at or above £500,000. Therefore potential savings were much higher in 2021 than they will be this year and so the impact on the market is likely to be smaller than on the first SDLT change in 2021, but the smaller October increase in SDLT may provide a better guide.
Based on the ONS data, which are based on completions and are real figures, i.e. not seasonally adjusted, after little movement in house prices in the first 5 months of 2021
the average price increased from £250,259 in May 2021 to £263,552 (5.3%) in June but then fell back to £251,186 (4.7%) in July, before increasing to £266,368 in September and falling back to £259,708 in October. However, by January 2022 prices had exceeded the September peak and kept rising throughout most of 2022.
HMRC figures show that property transaction numbers saw a massive spike in June 2021 at 214,540 and then fell back to 83,250 in July. There was a further significant spike in September to 165,730 to beat the smaller October SDLT increase, with transactions falling back to 85,890 in October but recovering to 110,220 by December.
This data suggests that although an increase in SDLT causes a significant short term spike in house prices there is, not surprisingly, an even greater short term impact on transaction numbers but a relatively quick recovery in activity levels.
Category:Ray Boulger
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