What The New Stamp Duty Regime Means For The Property Auctions Market

In the recent mini budget the system of Stamp Duty was overhauled. Here we’ll explain the changes and look at what they might mean for the property market and in particular the property auctions market.

What exactly is Stamp Duty and why does it matter?

Although on the face of it Stamp Duty or SDLT is a fee for stamping the documents involved in a house purchase it has operated as a revenue-earning tax on property buyers for many years now. According to HMRC it raised about £14 billion or 2% of all tax over the last year.

Very significantly though, in recent times, the Government has used Stamp Duty as a tool for intervening in the property market. This new Stamp Duty regime is essentially further intervention in the property market.

The new Stamp Duty regime

The new stamp duty system for England and Northern Ireland announced in September 2022 has been described as ‘abolishing Stamp Duty’. However it has effectively just raised the starting threshold from £125,000 to £250,000.

  • On transactions up to £250,000 the Stamp Duty is zero;
  • On the next £675,000 (from £250,001 to £925,000) the Stamp Duty is 5%;
  • On the next £575,000 (from £925,001 to £1.5 million) the Stamp Duty is 10%;
  • On the remaining amount (above £1.5 million) the Stamp Duty is  12%.

First time buyers can get a relief or discount so that they pay no Stamp Duty on purchases up to £425,000. They pay 5% SDLT on the portion from £425,001 to £625,000. There is no relief on more expensive properties.

Buyers of additional properties such as second home buyers and investors pay 3% on top of the standard rates.

Scotland has a different system of Stamp Duty called Land & Buildings Transaction Tax or LBTT.

Wales has a different system of Stamp Duty called Land Transaction Tax or LTT.

Wales has also recently announced some to changes to its system but Scotland has not (at the time of writing).

What the new Stamp Duty system could mean for buyers and sellers

First time buyers and buyers of cheaper properties may pay no SDLT at all.

Investors and second home buyers will be able to buy some properties for just 3% SDLT.

It’s important to bear in mind however that house prices have risen very sharply of late – around 15% over the last year lone. So the real value of the tax reduction has been eroded.

There are many places, especially in southern England, where there are no properties at all for £250,000 or less and very little choice for under £500,000. But in cheaper parts of the country, where there is good value property to be had, it could make that property even better value.

In addition, most experts believe the interest rate hike and subsequent ending of many attractive fixed rate mortgage deals could cause prices to fall. While that will impact sellers it could benefit buyers even more than they expected as more properties fall under £250,000 (or £425,000) and they have to pay no Stamp Duty at all.

In introducing the changes it’s likely that the Government calculated that, in practice, the cost would be manageable as relatively few buyers would actually benefit from the 0% rate on all the value of their purchase. If property prices fall over the next year or two it could mean that many, many more buyers than they expected benefit and so leave them with an unexpected shortfall in revenue.

New Stamp Duty rates and the property auctions market

Auction buyers pay the same Stamp Duty rates as anyone else – save that many are investors who have to pay the 3% additional rate.

It’s not unlikely that these buyers will be more interested in seeking out properties under £250,000 in order to make a Stamp Duty saving. This could generate more bidding interest at auction interest in the areas of the country where cheaper property is to be found (examples include the North East).

Sellers (and auctioneers too) may be wary when offering properties just over the new £250,000 threshold in case the additional tax payable discourages competitive bidding.

The future for Stamp Duty

The Government has said that, unlike the Stamp Duty holiday in 2021, these changes are permanent. Though given the fact that Stamp Duty is now established as a tool for intervening in the property market it is not unlikely that there could be further changes in future.

There have been some calls from the property industry that Stamp Duty should be scrapped, since it serves to distort the market. Given that Stamp Duty is also a significant source of revenue this is probably also unlikely unless it was replaced with a different kind of tax on property.