On Wednesday 8 July, the chancellor of the exchequer unveiled an emergency mini-budget that included the removal of stamp duty on homes worth up to £500,000 in a bid to kickstart the stalled housing market amid the coronavirus crisis.
Sunak said the cut will last until 31 March 2021, with the average stamp duty bill falling by £4,500.
Although the measure will be temporary, it could have a huge impact on people who are looking to buy homes on the lower end of the market.
Here is everything you need to know.
What is stamp duty?
Stamp duty land tax (SDLT) is a sum of money that must be paid when an individual purchases a property or a piece of land for a certain amount of money.
The quantity of money required for stamp duty depends upon the overall price of the property.
It is also contingent on the type of property you are purchasing; whether it is residential, it is non-residential, mixed-use or whether you are a first-time buyer.
Stamp duty land tax applies to properties in England and Northern Ireland. In Scotland, Land and Buildings Transaction Tax must be paid on purchased properties or land, while in Wales a Land Transaction Tax must be paid for sales that were completed on or after 1 April 2018.
A stamp duty land tax return must be sent to HM Revenue & Customs within 14 days of completion on a property or land, otherwise you may be charged penalties and interest.
How much does it usually cost?
As it currently stands, people who buy a property for up to £125,000 do not need to pay stamp duty, the government outlines.
If the property is worth between £125,001 and £250,000, the stamp duty land tax rate is 2 per cent. So if the property was valued at £250,000, the levy would be 2 per cent of £125,000, which is £2,500.
For the next £675,000, the rate is 5 per cent. Therefore, if a property was valued in the £250,001 and £925,000 bracket, the buyer would not pay any stamp duty on the first £125,000, would pay a 2 per cent rate on the next £125,000 and would pay a 5 per cent rate on the following £675,000.
For the next £575,000, for properties between £925,000 and £1.5m, the stamp duty rate is 10 per cent, with this figure rising to 12 per cent for properties above £1.5m.
As an example, as provided on the government’s website, if a person were to buy a home for £275,000, they would not pay stamp duty on the first £125,000.
For the next £125,000, they would pay 2 per cent stamp duty, which is £2,500, bringing them up to £250,000.
For the final £25,000, they would pay 5 per cent, as they would be in the next threshold. This would be £1,250, resulting in a final sum of £3,750 for stamp duty.
These rates apply to people who have bought a home before, excluding first-time buyers.
In 2017, then-chancellor Philip Hammond removed the stamp duty land tax for first-time buyers, so they do not have to pay the levy for properties up to £300,000.
For properties between £300,001 and £500,000, they must pay 5 per cent stamp duty tax.
If the price of the property or land surpasses £500,000, then the usual rates apply.
Who is eligible for the stamp duty “holiday”?
The current stamp duty land tax will be altered so that the threshold for stamp duty is set between £300,000 and £500,000.
This would allow members of the public looking at homes on the lower end of the housing market to avoid having to pay stamp duty for a significant period of time.
If a first-time buyer purchases a property for £500,000, the new system could allow them to save £10,000 on stamp duty, as per the current rates.
For people who have bought a property before, a new threshold of £500,000 would cut the cost of purchasing a £238,000 home by £2,260, while individuals buying properties worth half a million pounds or more could save £15,000.
While the move has been announced in an effort to kickstart the economy in Britain, a leading economic think tank has warned that it could bring the property market to a halt.
Helen Miller, deputy director of the Institute for Fiscal Studies, said the government “really should be keeping tight-lipped about these things”.
“If you are thinking about buying a house and there is the prospect of cutting your tax bill by £15,000 in a few months’ time, in most cases you are going to think it is worth waiting,” Ms Miller said.
“It would be better to wait and see if you need this fiscal stimulus before you enact it, and it’s a really bad idea to pre-announce it or trail it, because people will just delay. If the chancellor wants to do it, he has to announce it and say it’s happening now.”