That would mean a tax bill for anyone buying a home for between £125,000 and £500,000 from 1 April – purchases which are currently exempt from paying stamp duty.
The chancellor will make his taxation and spending plans clear on 3 March in a Budget speech that will be keenly watched by those looking to move home.
Read more: What time is the Budget announcement?
On 24 February The Times reported that Mr Sunak was planning to extend the stamp duty holiday until June, in a move designed to mitigate the impact of the latest coronavirus lockdown.
What do we know about the government’s plans and how will changes to stamp duty affect the cost of buying a flat or a house?
What are stamp duty rates and how much does it cost home buyers?
From £500,001 to £925,000, buyers must pay 5 per cent to the government, rising to 10 per cent on the portion between £925,001 and £1.5m. Above £1.5m, stamp duty is 12 per cent.
For example, if you bought a house for £625,000 next month, you would pay nothing on the first £500,000 and then 5 per cent on the remaining £125,000.
That works out at £6,250 for the Exchequer.
The zero rate under £500,000 was a temporary measure (the “stamp duty holiday”) introduced last July after the number of home sales collapsed because most were prevented during the first lockdown in March and April.
Since then, the housing market has boomed with more mortgages approved last year than in 2019, despite the lengthy shutdown.
Prices have jumped across much of the country with Nationwide recording a 7.3-per-cent average rise in the year to December 2020. This is well in excess of wage growth and comes despite a severe economic crash and financial hardship for millions of households.
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Property industry experts say this has been fuelled by the stamp duty cut, low mortgage interest rates and people seeking more outdoor space or another room for home working.
There were signs the growth has slowed in the latest figures with annual growth in average sold prices falling to 6.4 per cent in January.
What will happen to stamp duty from 1 April 2021?
The Scottish government has confirmed that its rates, which differ from the rest of the UK, will revert to levels in place before the pandemic (they can be found here).
Under current plans stamp duty rates in England, Wales and Northern Ireland will revert to where they were before 8 July 2020:
Up to £125,000 - no stamp duty
From £125,001 to £250,000 – 2 per cent
£250,001 to £925,000 – 5 per cent
£925,001 to £1.5m – 10 per cent
Above £1.5m – 12 per cent
As before, each of the rates only applies to the portion of the value that is within that band. For example, if you buy a house in May 2021 for £275,000 you will pay:
Nothing on the first £125,000
2 per cent on the next £125,000 = £2,500
5 per cent on the final £25,000 - £1,250
Total = £3,750
First-time buyers in England, Wales and Northern Ireland do not pay stamp duty on purchases up to £300,000. The changes, if they go ahead, will most affect people buying a property for between £125,000 and £500,000. With the average sale price at £250,000, a lot of buyers will face additional costs. Sales that are not already underway are unlikely to be completed before the deadline.
The UK government may change its mind on stamp duty, however.
What other options are there for the stamp duty holiday?
Several different approaches are said to be under consideration.
The Daily Mail previously reported Conservative Party sources saying that an extension of the stamp duty holiday was being looked at as a way of boosting the UK’s flagging economy.
An online petition signed by 140,000 people forced a debate in the Commons earlier in February with some Tory and Labour MPs arguing for an extension.
Other reports have suggested the holiday could be phased out rather than ending abruptly on 31 March.
On 24 February, The Times reported the holiday would be extended to June.
What will Rishi Sunak do about stamp duty?
As ever, Sunak has remained tight-lipped about future tax and spend plans. He has avoided answering questions about stamp duty in the House of Commons, saying only that an extension was one of many support measures that would have to be “considered in the round at the Budget”.
So we do not yet know what he will do but we can look at the arguments in favour and against keeping the stamp duty cut.
The tax cut has caused prices to rise, meaning that the overall cost of a property (purchase price plus stamp duty) may in many cases be approximately the same while the government has been deprived of billions of pounds of revenue. It is possible that re-introduction of the tax will help to cool down an overheated market.
A stamp duty holiday also hands a tax break to relatively well-off homeowners when the pandemic has disproportionately hurt lower-income households, particularly private renters.
The biggest beneficiary of the stamp duty holiday is the buyer of a £500,000 home – double the UK average price – who avoids paying £15,000 in tax. Most £500,000 homes are sold in London and southeast England so continuing the stamp duty holiday could be seen as being at odds with the government’s “levelling up” agenda.
It may not play well that the chancellor is said to be preparing to scrap a £20 uplift in universal credit payments for the poorest households while extending a tax break to the relatively well-off.
However, the giveaway will be popular among homeowners who will see the value of their properties rise further. It would also help first-time buyers of homes between £300,000 and £500,000 who will avoid a stamp duty bill, and it will please backbench Tory MPs and the property industry.
Arguably it would boost the wider economy although most experts would say that putting money directly into the hands of those likely to spend it – the less-well-off – would be far more effective.