CHANCELLOR'S SUMMER 2020 UPDATE - REAL ESTATE AND TAX

TEMPORARY REDUCTION OF STAMP DUTY LAND TAX (SDLT) PAYABLE IN A BID TO INVIGORATE THE HOUSING MARKET DURING THE COVID-19 PANDEMIC

IN BRIEF

The Chancellor of the Exchequer, Rishi Sunak, has announced in the Summer economic update (8 July 2020):

• A temporary increase to SDLT nil rate bands for residential property purchased in England (and Northern Ireland) from 8 July 2020 until 31 March 2021.
• The new rules increase the nil rate band threshold from £125,000 to £500,000 and mean that buyers only start to pay SDLT on the amount paid for the property above £500,000.
• The rates apply irrespective of whether it is a first time purchase or not.
• The changes take place immediately but the reduced rates (see tables below) will revert on 1 April 2021 to the SDLT rates that were in place prior to 8 July 2020.
• The temporary measure applies to transactions that are completed or substantially performed between 8 July 2020 and 31 March 2021 inclusive. The temporary rates do not apply where the transaction was substantially performed before 8 July 2020. This means that anyone completing a property purchase before 8 July 2020 will have to pay the full normal SDLT rates.
• People buying second homes and buy-to-let properties will also benefit, but will still have to pay an additional 3% on the prevailing rate for additional dwellings, but the 3% band threshold is increased from £125,000 to £500,000 for the period from 8 July 2020 to 31 March 2021.
• Companies as well as individuals buying residential property worth less than £500,000 will also benefit from the changes, as will companies that buy residential property of any value where they meet the relief conditions from the corporate 15% SDLT charge.
• The changes apply to homes purchased in England and Northern Ireland. Different rules apply to Wales and Scotland (Land Transaction Tax in Wales and the Land and Buildings Tax in Scotland). It remains to be seen whether the temporary changes announced today will prompt action to be taken in Scotland and Wales.*

*On 14 July 2020, the Welsh government announced temporary changes to Land Transaction Tax (LTT) rates and thresholds that will apply to purchases of residential property from 27 July 2020 to 31 March 2021. The changes are stated to be in response to those made by the UK government. The current LTT threshold will be raised from £180,000 to £250,000 from 27 July 2020 and reflect the property market in Wales. More detail on the temporary changes is here. According to the Welsh government: "it will mean that only around 20% of those liable to the main LTT rates will pay any tax at all.  Those buying properties costing more than £250,000 will make a saving of £2,450 over that which would previously have been payable". The rates and thresholds for buyers of residential property as an investment or as a second home remain unchanged. 

"WE NEED PEOPLE TO BE FEELING CONFIDENT, CONFIDENT TO BUY, SELL RENOVATE, MOVE AND IMPROVE. THAT WILL DRIVE GROWTH, THAT WILL CREATE JOBS."

The Chancellor hopes that the temporary change will result in an average saving of £4,500 and benefit nine in ten house buyers, save jobs in the construction sector and encourage homeowners to move and invest in their homes. According to the Chancellor, property transactions fell by 50% in May 2020 and house prices have fallen for the first time in eight years and "uncertainty abounds in the market".

SDLT TEMPORARY RESIDENTIAL RATES ON PURCHASES FROM 8 JULY 2020 TO 31 MARCH 2021

INDUSTRY REACTION

"A TEMPORARY SDLT HOLIDAY WILL PROVIDE A WELCOME BOOST TO THE BUILD-FOR-SALE MARKET, BUT OTHER PARTS OF THE MARKET EQUALLY NEED FURTHER SUPPORT. TO DRIVE THE DELIVERY OF NEW, HIGH-QUALITY RENTAL HOMES. THE CHANCELLOR MISSED A TRICK TODAY BY NOT GIVING INVESTORS IN THE BUILD-TO-RENT SECTOR AN EXEMPTION FROM THE SDLT 3% SURCHARGE".

British Property Federation

COMMENT

It remains to be seen whether today's announcement to temporarily cut SDLT rates will act as a catalyst to spur the housing market into action and restore confidence, or whether people will remain cautious as job uncertainty is prevalent. There are some that believe that the availability of higher loan to value mortgages must also be improved to support first time buyers across the country. Others worry it could encourage people planning to buy next year to accelerate their plans to take advantage of the tax break, leading to a potential property demand slump when the SDLT holiday is over.

It is worth noting that energy efficiency measures were mentioned in the economic statement. The Chancellor wants "a green recovery with concern for our environment at its heart." He announced a £2 billion Green Homes Grant allowing homeowners and landlords to apply for vouchers from September 2020 covering at least 2/3 of the cost of energy efficiency improvement measures up to £5000 per household, or the full cost up to £10,000 for low income households. In addition, he announced £1 billion funding to improve the energy efficiency of public sector buildings plus a £50m fund to pilot the right approach to decarbonise social housing. The British Property Federation has commented that this is "hopefully the first step in a broader plan to green the economy and the real estate sector".

It is apparent that the Chancellor is trying to get the economy back on its feet. The Chancellor explained that we are in the second phase of COVID-19 recovery (the first being the "protection" phase) and the emphasis now is on job creation and retention. The announcement of a new Jobs Retention Bonus (£1000 per employee) for employers who bring back furloughed employees and keep them continuously employed until January 2021 at an average wage of at least £520 per month between November 2020 and January 2021, may offer some degree of comfort, coupled with a reduction of VAT on food, accommodation and attractions from 20% to 5% for the next six months, but with the IMF expecting the deepest global recession since records began, SDLT savings may not be enough to tempt the average house buyer into taking the plunge.