Jeremy Hunt gave his autumn statement on Thursday (17 November), with the Chancellor of the Exchequer delivering a budget that aimed to restore the UK government’s fiscal credibility while also boosting the economy.
With the country in the midst of the worst cost of living crisis for decades and on the brink of a recession, Hunt sought to provide people with reassurance while also sowing the seeds of a swift recovery from the dire economic outlook. One of the announcements he made in this regard was a change to stamp duty - albeit one that is still two years away.
It comes after the tax on property purchases was cut by his predecessor Kwasi Kwarteng. While most of Liz Truss’s Chancellor’s tax cuts were scrapped by Hunt after they caused the pound to plunge and the cost of government borrowing to soar, those affecting stamp duty and national insurance were retained.
There are concerns the housing market could crash, with the Office for Budget Responsibility (OBR) predicting a 9% fall in house prices over the next two years. Such a drop could lead to a big reduction in tax income for the government.
So, what is happeneing to stamp duty - and how much has it already been cut by? Here’s what you need to know.
What is stamp duty?
Stamp duty is basically a tax on property purchases. Everyone buying a house, flat or land has to pay a proportion of the price of it to the taxman, although some types of buyer pay a lower rate than others.
At present, you do not pay stamp duty on the first £125,000 of any residential property purchase. The first tier of the tax is between £125,001 and £250,000, where you have to pay a rate of 2%.
The second tier - £250,001 to £925,000 - has a 5% rate; the third - £925,001 to £1.5 million - has a 10% rate. Meanwhile, anything above £1.5 million carries a 12% rate.
First-time buyers in England have a higher threshold of £300,000, which applies if the purchase price is under £500,000.
Rules differ in the other UK nations. In Scotland, for example, the threshold of the equivalent tax to stamp duty (the Land and Buildings Transaction Tax) sits at £145,000, or £175,000 if you’re a first-time buyer.
Stamp duty is a big source of revenue in England. The UK government raises about £12 billion a year from the property tax.
What is the stamp duty cut 2022?
In his mini budget on 23 September, the then-Chancellor Kwasi Kwarteng effectively announced an immediate stamp duty tax cut. The rates of the tax will remain the same, but the thresholds have changed.
The initial threshold doubled from £125,000 to £250,000, while first-time buyers will not pay anything on the first £425,000 of a property - a £125,000 increase in the tax’s threshold.
First-time buyers also benefited from a change in the criteria allowing them to access this discount. Rather than it only applying to properties under £500,000, it will now apply to those valued at £625,000.
“Home ownership is the most common route for people to own an asset, giving them a stake in the success of our economy and society,” Kwarteng said in the mini budget speech. “So, to support growth, increase confidence and help families aspiring to own their own home, I can announce that we are cutting stamp duty.”
He added that his announcement would take 200,000 people out of paying stamp duty altogether. This tax cut only applies to England and Northern Ireland.
If you would like to see how the stamp duty cut affect your property purchase, the HomeOwners Alliance has a useful calculator tool on its website.
What was the autumn statement stamp duty announcement?
In his autumn statement speech, the current Chancellor Jeremy Hunt said the stamp duty cut would remain in place. However, he said he would “sunset” the measure (i.e. bring it to an end by pushing thresholds back to where they were) on 31 March 2025.
By doing this, Hunt said he would create “an incentive to support the housing market and all the jobs associated with it by boosting transactions during the period the economy most needs it.” Basically, he feels that but setting a time limit on the lower tax rates, it will encourage housing market activity to continue through the upcoming recession.
Typically, house prices fall during recessions because people are more likely to become unemployed and receive real-terms pay cuts, which takes away much of the demand for property. But Hunt is hoping to recreate the conditions of Rishi Sunak’s 2021 stamp duty holiday, which saw a flurry of housing market activity.
When you add into the mix that people are already seeing their wage packets tumble due to the cost of living crisis, and mortgage rates have soared due to the mini budget, it’s unsurprising that house prices have already slowed. However, they still remain close to record highs, having soared since the Covid pandemic began.
Hunt’s move has not been universally welcomed, with the Institute for Fiscal Studies think tank director Paul Johnson saying Mr Hunt is abolishing “about the only good policy” from Kwasi Kwarteng’s autumn mini-budget.