4 million homes pushed into higher stamp duty bracket: Expert reveals how the levy will affect Brits across the country

As a result of soaring UK house prices, more than 4 million homes have been pushed into a higher stamp duty bracket compared to March 2020. Of those pushed into a higher bracket, 28% have moved above the initial £125,000 stamp duty threshold according to data from Zoopla. The UK property market has been buoyant since last year – with house price growth showing an extraordinary 11.8% annual rise in 2021. This rise can be attributed, predominantly, to the stamp duty holiday. This was a tax break introduced in the UK during the peak of the coronavirus pandemic in July 2020, which scrapped the transfer tax on the first £500,000 of a home sale with savings of up to £15,000 available to buyers.

The holiday was gradually phased out and it reverted to the typical stamp duty system at the end of September 2021. However, demand for property within the UK has not faltered, with the average asking price of a house hitting a new high of £367,501 in May. Alongside this, 53% of properties are selling at or over their final advertised asking price and 98.9% are achieving their final advertised asking price according to Rightmove.

Stamp duty is an important factor to consider but can often be overlooked when buying property, with research from Cornerstone Tax showing that 61% of homeowners said that they have never considered whether there was a mistake in the stamp duty they paid. However, the study also showed that 13% of homeowners said that they feel they were forced to pay too much stamp duty in error, due to their solicitor. It is therefore important to understand what stamp duty is and what the future holds.

David Hannah, Group Chairman at Cornerstone Tax discusses the future of stamp duty:

“In late 2021 HMRC published a consultation document on proposed changes to the mixed-use property rules and multiple dwellings relief. That means if you buy a property, currently, which has any element of non-residential or is not suitable for use as a dwelling then you don’t pay the higher residential rates of SDLT. HMRC are ‘consulting’ about how they can change that to remove the advantage that these properties have.

“One of the things they’re proposing is that we’re going to be required to split out the non-residential elements of the property and only pay the non-residential rates on that part. In their consultation document they give an example of a house at three and a half million where the tax nearly doubles from £161,000 to £320,000. But the good news is that even if they do implement those changes, if you’re buying a property at a million or less, this won’t affect you at all so there’s no need to worry about it.

“Where it’s really going to bite down is on large country estates and expensive London properties where certain features – which currently make them mixed-use – will no longer be available. As a result, the tax savings aren’t going to be around.

“More importantly, they’re proposing to change the basis of calculating multiple dwellings relief and for most of us that’s afforded as a £10,000 saving minimum if we’ve bought a house with an annex. They’re now proposing that the ‘granny annex advantage’ should be eliminated. They are suggesting that any house with an annex (where the annex is worth less than a third of the main house) won’t be eligible for multiple dwellings relief. This could cost the average annexed house owner from £10,000 to £87,000. The consultation document talks about supporting keeping families together but it’s clear that the revenue don’t like the tax advantage that these properties have.

“For most of us this will probably mean that over the course of the rest of this year, possibly even early 2023, we’re going to see the law changed, but it can only be changed going forward. This means many of the advantages which they talk about in this document are going to be available on past historic purchases if you can conduct a review of your transaction and will be available until the law changes.”