An eye catching change in last week's budget was the suspension of Stamp Duty Land Tax for first time buyers of residential property. This change should be a big help to first time buyers and in turn good news for house builders by adding stimulus to the housing market.
The suspension operates in respect of purchases of residential property not exceeding £250,000. The change came into effect on 25 March 2010 and is due to run until 25 March 2012 (election permitting).
Previously, SDLT was charged at a rate of 1% of prices exceeding £125,000.00 up to £250,000.00. First time buyers could therefore save up to £2,500.00.
For first time buyers mortgages continue to be difficult to obtain and it is crucial to have funds available for a deposit. Not having to pay SDLT enables more cash to be used for a deposit and should assist with mortgage applications.
The logjam in the supply of first time buyers at the bottom end of the housing market is holding back the market generally with chains unable to complete and sales of higher priced housing being delayed. The Budget initiatives have been welcomed by the house building industry and in particular, its representative body, The Housebuilders Federation as a "huge boost" to the house building industry.
On the downside, and partly to fund the SDLT suspension, the Chancellor has introduced a new 5% SDLT rate on all residential purchases over £1 million - this is an increase on the previous 4%. This is a classic Robin Hood move by the Chancellor - SDLT on a purchase of £1 million would increase from £40,000.00 to £50,000.00 which, even if you can afford it, is a painful hike. That said this measure only comes into effect on purchases completing on or after 6th April 2011- so who knows whether this increase will be implemented if there is a change of government.
Whilst this particular tax increase is anticipated to hit the South of England rather than the North, its impact would still be felt in the particularly affluent parts of our region such as North Leeds, Harrogate, Ilkley and Wetherby.
So, all in all, whilst these changes look like classic pre-election politics, the changes benefitting first time buyers should be of wider benefit to the housing market and good news for house builders. If the result is to increase the flow of transactions and the dynamism of the market, this may, to an extent mitigate the pain of the planned increased rate in SDLT for residential properties over £1million.
Of course, as to how these changes work in practice, the devil will always be in the detail. If you would like to discuss this , please contact James Lawson on 0113 336 3367.
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