Stamp duty is to be abolished for first-time buyers on all properties worth up to £300,000 – but the change prompted a warning that it could simply mean higher prices.
The reform, one of a raft of Budget changes designed to boost home ownership, takes effect immediately and will knock up to £5,000 off the cost of purchases.
However, the Office for Budget Responsibility (OBR) said the main beneficiaries would be those who already own property, rather than first-time buyers, as it will mean they can sell their homes for more.
The reform was announced alongside a £44bn plan to boost home building to 300,000 a year by the mid-2020s and a threat to compulsorily purchase parcels of land sat on by developers – sending shares in FTSE 100-listed house builders sliding.
HOW IS STAMP DUTY CHANGING?
Until today, first-time buyers paid stamp duty on purchases above £125,000.
The Treasury says that raising the threshold to £300,000 will mean 80% of them pay no stamp duty.
They will also pay less on purchases between £300,000 and £500,000.
The reform applies in England, Wales and Northern Ireland.
I’M ABOUT TO BUY MY FIRST HOUSE – WHAT WILL I SAVE?
If you are buying a property that costs more than £125,000 and up to £500,000 you will save money.
That is because 2% duty currently applies on every pound above £125,000 that a home costs, up to £250,000, while a 5% band currently applies on the band between £250,000 and £925,000.
So for example a £200,000 property has until now attracted a tax bill of £1,500. This bill is now being abolished for first-time buyers.
A £300,000 purchase would have meant a £5,000 bill but this will also now be scrapped.
Above this level, stamp duty will be paid by first-time buyers, at 5%, in the £300,000-£500,000 band.
So a £10,000 tax bill on a £400,000 property is being reduced to £5,000 and a £15,000 charge on a £500,000 home goes down to £10,000.
For a property above £500,000, stamp duty remains unchanged, including on the proportion of the price below this level.
DO I QUALIFY AS A FIRST-TIME BUYER?
A first-time buyer is defined as someone who has never owned freehold or leasehold property before and who is purchasing their only or main residence.
So if you have sold up and rented for a while, you do not qualify.
The Treasury says residential property anywhere in the world is counted when determining this status.
In a joint purchase, all purchasers would need to be first-time buyers to qualify for any benefits.
First-time buyers or their solicitors have to enter a code on their stamp duty return that indicates the status.
COULD IT BACKFIRE?
The Government said it was introducing the changes because those trying to get onto the housing ladder were more cash constrained than other buyers, as they also struggled to cobble together deposit and conveyancing fees.
But the Office for Budget Responsibility (OBR), the Government’s own independent forecasting body, immediately predicted that the savings on tax would simply mean higher prices, since they will mean first-time buyers can put the money towards higher deposits.
“Thus the main gainers from the policy are people who already own property, not the FTBs themselves”, the OBR said.