SDLT: the holiday the housing sector would like to extend

03 Mar 2021

The big question for our developer clients in recent months has been whether or not an extension to the Stamp Duty Land Tax (SDLT) holiday would be confirmed in the Budget.      
The SDLT threshold was temporarily raised from £125,000 to £500,000 for residential properties in England and Wales in July 2020, and was due to end on 31 March 2021. Today’s Budget (03 March 2021) has just confirmed that the suspension will be extended to 30 June 2021 for the £500,000 relief, after which the starting rate of SDLT will reduce to £250,000 until the end of September 2021, when it will revert to £125,000.
The SDLT holiday was followed by a frenzy in the housing market.  The Office for National Statistics has reported booming house price rises of 8.5 % during 2020, with the average house price reaching a record high in December 2020.  
Since SDLT (and its predecessor, Stamp Duty) was introduced there has always been a minimum threshold at which the tax kicked in.  However, with seemingly constantly increasing house prices, the thresholds have not kept pace with rising values and more and more transactions are caught by the tax.  There is an argument that making the holiday a permanent extension would realign the brackets to reflect the increase in property prices that we’ve seen over the last two decades.
It is a tricky juggling act as the revenues raised by Stamp Duty Land tax are staggering - £11.55bn between 2019 to 2020.  However, the government is only too aware that a buoyant housing marking keeps large sectors of the economy turning, at a time when other parts of the economy are severely restricted, if not closed.
The other issue faced by our clients is whether the current boom in the housing market is sustainable growth, or a micro-bubble fuelled by the SDLT holiday. Landowners will always seek higher prices for their land, but our clients are naturally cautious and do not want to be caught out by over-paying for a site.  
One way we have helped our clients mitigate this risk is by advising them on ‘Open Market Value’ based option agreements or promotion agreements where the price is calculated using agreed criteria to determine what is the market value of the property at the time of the sale.  Both parties have the comfort of knowing that the price will reflect the market at the time the sale completes and neither will be disadvantaged by changing market conditions.
For further information, please contact a member of the team.

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