The Budget statement is just 2 weeks away and speculation is mounting over what tax and spend-related policies might be changed to support the housing market.
Improving access to mortgages is one key area I wrote about recently. Another big area of tax for the housing market is the cost of stamp duty facing home movers and first-time buyers.
Stamp duty on residential sales raised almost £13bn in 2022/23. But the cost is not spread equally across the country and depends on where you live, the property price, type of buyer you are and how many homes you own.
The scale of revenues raised and how the cost of the tax falls on buyers means it’s unlikely we will see any significant changes in the upcoming Budget.
However, there is a case for recent reforms to stamp duty relief for first-time buyers to be made permanent, otherwise the cost of buying as a first-time buyer will increase in 2025.
First-time buyers' stamp duty relief
In England and Northern Ireland, there is a tax break for first-time buyers to reduce the cost of stamp duty.
This isn't the case in Wales and Scotland, as property prices are lower and the way the tax is set means most first-time buyers pay nothing - or a very low amount.
In England, 203,300 first-time buyers claimed ‘first-time buyer relief’ from stamp duty in 2022/23, with savings of £3,500 per purchase on average (£708 million).
150,000 first-time buyers paid no stamp duty at all, meaning they purchased properties below £425,000.
Meanwhile 53,000 had to pay partial stamp duty because they purchased a property costing between £425,000 and £625,000 (this portion of the property price carries a 5% stamp duty charge).
Any purchases above the maximum price of £625,000 means first-time buyers have to pay the normal level of stamp duty with no tax relief.
Our data shows most first-time buyers are looking for homes under the current first-time buyer relief thresholds.
Over the last six months:
8 in 10 first-time buyers searching for a home on Zoopla have been looking for homes priced under £425,000 and getting full relief from stamp duty
15% of first-time buyers have been searching for homes between £425,000 and £625,000 and would pay 5% stamp duty on the portion over £425,000
7% are looking over the £625,000 threshold and have to pay full stamp duty
First-time buyers searching to buy in southern England are generally having to look for higher value homes and face paying the most stamp duty.
Half of would-be buyers in London would pay full or partial stamp duty.
Stamp duty calculator
Stamp duty calculator
How much stamp duty will you need to pay? Let our calculator do the maths. Here's how stamp duty works.
First-time buyer stamp duty relief set to reduce in 2025
The current thresholds for first-time buyer stamp duty relief are due to end in 2025.
This would reverse the changes made in the 2022 Mini Budget, where the threshold for full relief from paying stamp duty as a first-time buyer was raised from £300,000 to £425,000.
In addition, the maximum value for partial relief for first-time buyers was raised from £500,000 to £625,000.
If these thresholds are reduced to pre-September 2022 levels, it will mean more first-time buyers paying more stamp duty.
Based on what first-time buyers are searching for on Zoopla today, our estimates are that an extra 30% would pay more stamp duty as a result. That’s to say, 30% of first-time buyers are currently looking for homes that cost more than £300,000.
This would hit first-time buyers hardest in southern England, where the cost of home buying is greatest.
A reversal of the current levels of first-time buyer relief would see 45% paying partial stamp duty and a further 32% paying full stamp duty compared to today.
If the Government wanted to help first-time buyers in the upcoming budget, one option would be to make the current threshold for first-time buyer relief permanent.
They could go further by extending the relief to £625,000, providing support to over 90% of first-time buyer purchases.
Stamp duty raises £12.7bn a year from 1 million sales
Stamp duty is a tax on property purchases that has been subject to successive changes in recent years.
These changes and rising house prices have resulted in stamp duty revenues reaching £12.7bn in 2022/23, which is double the money raised a decade ago.
It’s also a devolved tax, meaning stamp duty rates are set separately in different countries across the UK: the Land and Buildings Transaction Tax (LBTT) in Scotland, the Land Transaction Tax (LTT) in Wales and Stamp Duty Land Tax in England and Northern Ireland.
Discover the different stamp duty rates across the UK
Stamp duty is a tax on property purchases in southern England
In simple terms, the higher the price of a home, the more stamp duty you’ll pay. If you own multiple properties, the level of tax paid increases further.
Housing sales in England accounted for over 90% of total residential stamp duty receipts in 2022/23, with less than a tenth coming from sales in Scotland, Wales and Northern Ireland.
High house prices in London and the South East saw these regions account for 56% (or £7.1bn) of UK residential stamp duty paid in 2022/23 - yet they accounted for just a quarter of housing sales.
As a progressive tax, stamp duty hits those buying higher priced homes. Less than 1 in 20 housing sales over £1m accounted for 40% of stamp duty paid (£4.8bn) in England.
But it’s not just high house prices that add to the stamp duty bill for buyers.
A quarter of transactions are where the buyer owns multiple properties, which results in them having to pay the 3% ‘higher additional rate’ on top of the base level of stamp duty.
This higher rate levy accounts for half of stamp duty paid in 2022/23.
However, the good news is that around half of home buyers currently pay no stamp duty at all where the purchase price is below £250,000.