Stamp Duty Changes: A Guide for Buyers, Sellers and Landlords

The Stamp Duty tax has been the star of much of the housing news in recent weeks. A hike to the duty included in the 2016 budget is said to have major implications for the sector. The move is intended to take steps towards solving the current UK housing crisis, the main element of which is a major shortage of housing stock. However, confusion has arisen as to exactly how changes to stamp duty will help, if at all. We've put together a guide to stamp duty; what it is, what it’s intended to do – and what it actually does.

What is the stamp duty hike?

Stamp duty was a tax on the cost of homes and properties valued at over £125,000. As well as introducing a lower threshold of £40,000 (at which stamp duty will now begin at 3 per cent) the 2016 Budget proposes to raise the duty by 3 per cent, for people with second homes. So the total rate will now be 5 per cent in the £125,000-£250,000 bracket, and 8 per cent for homes valued between £250,000 and £925,000.

What’s the goal?

The purpose of the rate change is to discourage people from buying second and third homes, so that some of the UK housing stock can be opened up to first-time buyers. The idea is also to target new buy-to-let landlords, so that people are encouraged to buy rather than rent their homes.

Who does it affect and how?

Landlords: The target of the rate hike is new landlords, who were found to be among the "losers" by the Telegraph’s assessment of the 2016 budget.

Renters: Because new landlords are hit with an extra tax on buy-to-let investments, renters are also going to wind up paying higher prices for their homes.

Buyers: While the rate change is intended ultimately to benefit first-time buyers, it heavily discourages buyers of second and third properties. Additionally, the fact that it will end up driving up rent prices means that those who have not previously bought a home will be saving less, and so will be less likely to be able to buy in the near future. No matter what, it’s lose, lose, lose for buyers.

Sellers: Sellers, especially those looking to downsize from two or three properties to just one, are benefited by the changes to stamp duty, with housing prices currently at an all-time high and still rising. The Telegraph has declared downsizers to be among the winners in the 2016 budget. "The new stamp duty rates applying from April 2016 – which had been announced previously – ran the risk of catching out those people who owned two properties temporarily while, for example, they sought to downsize," the Telegraph reported. "In his Budget, Mr Osborne said they will now have 36 months in which to sell one of the properties – increased from 18 months in the earlier proposal."

With average home prices now at a record high of over £200,000, sellers are in a better position than ever, while everyone else may suffer. The changes to stamp duty don't seem to do much to change that situation. If anything they make the disparity just a little bit bigger.