Budget 2021: Property taxes and incentives
The Chancellor announced some welcome measures for homeowners and prospective buyers in his Spring Budget, with the extension of the Stamp Duty Land Tax holiday on properties worth up to £500,000 and the introduction of a new mortgage guarantee scheme.
Stamp Duty Land Tax
The Government introduced an increased Stamp Duty Land Tax (SDLT) “Nil Rate Band” of £500,000 for residential property purchases in July 2020, which is due to expire on 31 March 2021.
In view of many property transactions that will not be able to complete in time for the withdrawal of this increased Nil Rate Band, the Government will extend this temporary increase in England and Northern Ireland until 30 June 2021. From 1 July 2021, the temporary increase in the Nil Rate Band will be phased out, and will reduce to £250,000 until 30 September 2021 before returning to £125,000 on 1 October 2021. The increased allowance is expected to cost the Exchequer over £1.6bn in tax revenues in total.
| Date | Amount of residential nil rate band (SDLT) |
|---|---|
| From 8 July 2020 | £ 500,000 |
| From 1 July 2021 | £ 250,000 |
| From 1 October 2021 | £ 125,000 |
The government also announced the creation of eight Freeport sites in England. The purchase of property within a Freeport site will obtain full relief from SDLT until 30 September 2026.
Land and Buildings Transaction Tax
Land and Buildings Transaction Tax (LBTT) is determined by Holyrood, and support was announced in July 2020 to increase the LBTT "Nil Rate Band" to £250,000 (from £145,000) from 15 July 2020. The Nil Rate Band is due to revert to £145,000 on 1 April 2021.
The UK government announced today additional funding for Scotland, and it remains to be seen what additional support the Scottish Government will provide to residential property buyers in Scotland.
Comparison of SDLT and LBTT purchase (before 1 April 2021)
| Band | SDLT - £350,000 | LBTT - £350,000 |
|---|---|---|
| Nil rate band | Nil | Nil |
| 5% band (LBTT: £250k+) | N/A | £3,750 |
| 10% band (LBTT: £325k+) | N/A | £2,500 |
| Total (without ADS) | Nil | £6,250 |
| ADS (if applicable: 3%; 4%)* | £10,500 | £14,000 |
| Total (with ADS) | £10,500 | £20,250 |
*Additional Dwelling Supplement
95% mortgage guarantee
Many banks have tightened their lending criteria over recent months, which has restricted the ability of those with low deposits to be able to purchase residential property.
The government will introduce a new mortgage guarantee scheme in April 2021 which will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5%. This will apply for homes with a value of up to £600,000. Borrowers will have the opportunity to fix their initial mortgage rate for at least five years should they wish to.
The scheme will be available for new mortgages up to 31 December 2022.
