The UK government’s stamp duty holiday, introduced in 2020 as part of its response to the COVID-19 pandemic, will officially end in March 2025. This temporary measure aimed to boost the housing market by reducing the cost of buying property and stimulate economic recovery. The holiday raised the threshold at which stamp duty is payable, offering significant savings to homebuyers. However, the government has confirmed that this measure will be phased out by 2025, returning stamp duty to its pre-pandemic structure.

Impact of the Stamp Duty Holiday:

Since its introduction, the stamp duty holiday has been a significant factor in the housing market’s recovery, particularly in the aftermath of the pandemic. With many sectors of the economy affected by the crisis, the government’s move to temporarily raise the stamp duty threshold allowed homebuyers to save considerable sums of money. In essence, for homes up to £500,000, the buyer would not have to pay any stamp duty, a saving of up to £15,000.

This holiday was particularly beneficial for first-time buyers, who were already facing a competitive housing market and rising property prices. It also attracted investors looking for cost-effective ways to expand their property portfolios. As a result, the housing market saw a sharp rise in demand, with house prices climbing steadily.

However, the end of the stamp duty holiday in 2025 will reverse these savings, and many expect a return to higher stamp duty rates, which could affect both affordability and market activity.

Return to Normal Stamp Duty Rates:

When the stamp duty holiday ends, the tax will revert to its original, tiered structure. The threshold for paying stamp duty is currently £125,000 for residential properties (or £300,000 for first-time buyers). For properties above these thresholds, the buyer must pay varying rates according to the price.

The standard rates for stamp duty are as follows:

0% on properties up to £125,000
2% on properties between £125,001 and £250,000
5% on properties between £250,001 and £925,000
10% on properties between £925,001 and £1.5 million
12% on properties over £1.5 million
Given that the average house price in the UK has risen substantially in recent years, many buyers could be hit hard by the return of stamp duty charges, especially for more expensive properties.

Financial Example:

Let’s look at a couple of scenarios to understand how the end of the stamp duty holiday will affect buyers.

Property Value: £300,000 (Standard Residential Property)

During the Stamp Duty Holiday: If you buy a property worth £300,000, no stamp duty would be paid under the holiday. Therefore, the saving is £5,000 (as the stamp duty rate for properties between £250,001 and £925,000 is 5%).

After March 2025: Once the holiday ends, the buyer would pay 5% on the entire £300,000, which equals £15,000 in stamp duty.

Difference in Cost: The buyer would pay an additional £10,000 in stamp duty once the holiday ends.

Property Value: £650,000 (Standard Residential Property)

During the Stamp Duty Holiday: No stamp duty would be paid on the first £500,000, and the remaining £150,000 would incur 5% stamp duty. That’s £7,500 in stamp duty, saving £20,000 compared to the normal rate.

After March 2025: The stamp duty due would be 5% of £650,000, amounting to £32,500.

Difference in Cost: This is a £25,000 increase in stamp duty post-holiday.

Impact on the Housing Market:

With the holiday set to end in 2025, many are predicting a rush to buy before the deadline, as buyers seek to avoid the return of stamp duty costs. This could result in a short-term boost to housing demand, with a corresponding increase in property prices as the deadline looms. After the holiday ends, demand may drop as the higher costs of stamp duty make properties less affordable for many buyers, especially first-time buyers and those looking at mid-range properties.

In summary, the stamp duty holiday has been a significant factor in the UK’s housing market recovery, providing savings to buyers, particularly those purchasing homes up to £500,000. However, with the holiday ending in 2025, the return of standard stamp duty rates could have a noticeable impact on the affordability of property and potentially slow down market activity, especially in higher price brackets. Buyers are likely to act quickly before March 2025 to make the most of the current tax-saving conditions.