What Is A Stamp Duty Holiday?

by | Nov 1, 2022


In this article, stamp duty holidays will be talked about in-depth, explaining all you need to know. The term is something landlords are known to capitalise on, making the purchase of property cheaper, but how does this exactly work?

On top of this, stamp duty differs throughout the UK, and so do the holidays that go along with it. Therefore all the details on how stamp duty impacted home prices throughout the UK and what this means for buyers and sellers will be disclosed.

Overall, the topic is something as a landlord it is important you understand in detail in order to identify opportunities.

So, read on to learn more about the topic.

What does stamp duty holiday mean?

A Stamp Duty Holiday is a temporary break of tax paid under stamp duty. Stamp duty is the percentage of tax paid to the government on the purchase of a property. Stamp Duty and Land Tax (SDLT) is a type of tax applied to reduce the amount of money landlords can make from property appreciation.

Property bought during a stamp duty holiday

Typically, a stamp duty holiday completely excludes stamp duty tax or reduces it in staggering amounts as the price of property gets more expensive.

For example, someone who bought a £450,000 house in the July 2020 stamp duty holiday paid no stamp duty and land tax whereas a year before they would have to pay 5% at £22,500. This is a big difference when purchasing a property.

When was the stamp duty holiday introduced?

The most recent stamp duty holiday lasted from the 1st of July 2021 to the 30th of September 2021. However, there have been a few stamp duty holidays throughout history. 

The most recent stamp duty holiday is now being called temporarily reduced rates by the government. More can be found about this information here. To sum it up, the initial 0% stamp duty rate originally introduced in 2020 was reduced from the £500,000 property price threshold to £250,000. 

As of 2022, this holiday has been scrapped and instead replaced with a reduced rate of stamp duty which has been in place since the 23rd of September 2022. This on the other hand is not called a stamp duty holiday and is simply just the government putting in measures for people to continue to buy property.

Why was the stamp duty holiday introduced?

In recent times, this holiday was introduced to kickstart the economy after the pandemic.

This encourages the purchasing of new homes for landlords looking for investments and first-time buyers looking to find somewhere to live. The idea is the incentive of saving money would encourage buyers to buy now rather than later, at a time in the UK economy when spending was encouraged.

There were other similar schemes in place, unrelated to property, to help stimulate the economy in general like the eat-out-to-help-out scheme. They all used government funding to encourage spending and allow businesses to start earning money again.

Who will benefit from the stamp duty holiday?

In the original implementation of the stamp duty holiday, Wales and Scotland followed suit by reducing their stamp duty equivalents; Land & Buildings Transaction Tax in Scotland, and Land Transaction Tax in Wales.

However, in the recent changes the government have made to stamp duty and land tax (SDLT), they have left the governments of Scotland and Wales behind so they no longer benefit from changes to stamp duty.

In September 2022, chancellor Richi Sunak announced that there will be a reduction in stamp duty for those in England and Northern Ireland spending money on homes priced £250,000 or less. Having said this, this is good for investors only as first-time buyers are exempt from stamp duty up to the first £300,000 anyway.

September 2022 stamp duty changes

Stamp duty has slightly changed. These are the most up-to-date rates which mostly affect the bands of property purchases on the lower end, getting rid of the 2% SDLT rate.

SDLT rates after September 2022

How much could you have saved in the stamp duty holiday?

The maximum amount someone buying a home could save. This is dependent on whether you are buying a first or second home too. For an accurate stamp duty calculator for your second home check out our website.

How does the Stamp Duty holiday work?

Stamp duty holidays work by making the original rates that stamp duty is paid tax-free or reduced. Over time, this will mean the government collects less tax from homeowners as the private landlord pays less. This gives an incentive for buyers as their homes become cheaper.

Is the stamp duty holiday still running?

As of the 1st of October 2021, the stamp duty holiday in England and Northern Ireland ended. The rates for stamp duty went right back to the levels before the pandemic. However, these changes have been changed again and in September 2022, the first Stamp Duty and Land tax threshold (0%) was doubled to £250,000.

This means a property that was bought between October the 1st 2021 and the 23rd of September 2022 between £125,000 and £250,000 used to pay 2% SDLT but now these rates are 0%.

On top of this, the thresholds for paying stamp duty for first-time buyers have been increased. A first-time buyer can now buy a house up to £425,000 in value without paying any stamp duty and a house up to £625,000 in value by just paying 5% in SDLT.

Is the stamp duty holiday going to be extended?

As of 2022, the stamp duty holiday is not extended. This is partly due to the government trying to reduce spending and the borrowing of money which will help to drive down inflation in the UK.

Once this period in the economy is over there could be an addition of the stamp duty holiday again. However, for the time being, it is still easier for those who are buying homes at the lower end of the value scale to pay less tax due to the changes implemented on September 23rd 2022 seen here.

Will there be a stamp duty holiday in 2022?

In 2022, there definitely won’t be another stamp duty holiday due to the recent announcement for stamp duty to mostly remain the same with a slight reduction in tax paid for homes of lower value. Followed by a reduction in stamp duty for first-time buyers.

Stamp duty holiday for homebuyers

Homebuyers do benefit a lot from the stamp duty holiday. Especially if they are first-time buyers. There are a variety of schemes, grants and pieces of legislation put in place to help people buy a home for first-time buyers in particular the help to buy scheme.

For those landlords seeing properties and the buying of a home as an investment, the stamp duty holidays also really helped them lock in good loan-to-value ratios for their mortgage into the future which allowed landlords to go for bigger deals because they’d pay less in tax.

Stamp duty holiday for property sellers

For the sellers of property, the stamp duty tax doesn’t have much effect directly. Having said this, the addition of the tax reduced demand for the purchase of property which drives down the price of properties in general.

This is something you need to look out for as a property owner as understanding the economic climate and what is going to drive up demand is a key piece of knowledge you need to learn in order to predict inflation, one of the two ways a landlord can make money from property investment.

Are buy-to-lets and second homes eligible for the stamp duty holiday?

Buy-to-lets are eligible for stamp duty and land tax and throughout the years, if anything, they have been taxed harder than other types of properties on different types of mortgages like residential mortgages to name an example.

Currently, in 2022, the rate at which a buyer pays stamp duty using a buy-to-let mortgage is as follows:

Stamp duty buy to let rates 2022

Did the stamp duty holiday have an impact on house prices?

On average, after the addition of the stamp duty holiday, house prices were pushed up throughout the UK by 8.5%. This was after the original stamp duty holiday was put in place in June 2020 after the pandemic hit.

It is up for debate whether it was the absence of stamp duty that solely drove the cost of house prices up. It could have been the fact that a lot of people were stuck inside their homes during the pandemic and wanted a change quickly after being unable to process a mortgage with a lender.

In 2022, this is seeing a negative effect because people who originally thought buying a house then was a good idea may nowadays default on their mortgage payments. As a result, banks are hiking up their interest onto variable rates and selling their home to make their money back. Leaving buyers who benefitted from stamp duty worse off than before.

All in all, in the short term yes the price of properties in the UK definitely went up and the absence of stamp duty was a factor. It is just hard to justify economically whether the stamp duty holiday was the main factor or it was a variety of factors that contributed to the increase in house prices. For more on this story click here.

The direct effect on residential mobility

When looking at the particular effect on the residential property market, there is a clear difference in how buyers responded to the stamp duty holiday with residential properties compared to previous years.

First of all, there was an increase in residential property sales but this increase wasn’t uniform across all the values of the housing market. Astonishingly, the band of the £500,001 – £925,000 property purchases increased by a great 47%.

When comparing this figure to the fact that the residential property market increased by just 19% (which is still well above average), it is clear that some values of the property remained more desirable than others to buy residentially.

In fact, so much so, that buyers who originally would have bought a lower-value home now took advantage of the stamp duty holiday and bought higher-value homes and the sales of homes under £125,000 dropped by 29%.

When comparing the 19% increase in residential property sales to the average of an 8.5 % increase across all property sales, it is reasonable to conclude the commercial property market took a massive hit. This is due to the lack of demand for office space as companies realised they could allow people to work from home during the pandemic.

Following this, a lot of investors calculated stamp duty commercially and converted commercial buildings into residential properties to match market demand.

How the holiday affected behaviour

As we know, the introduction of the stamp duty holiday affected the number of property sales by quite a bit and increased sales dramatically. But where were all these new buyers heading?

A woman relaxing after buying a home with no SDLT

Well, a whopping 61% of all sales of residential properties happened in London and the South East with a greater proportion in the southeast of England.

It is fair to conclude, buyers used the tax-free haven as an opportunity to move to London which is always a popular choice but likewise move further away from the capital towards the southeast while also benefiting from the quick commute to the city.

This is following the trend of people working from home and not minding a longer commute and being on the outskirts of the capital. All while also having a more rural environment to live in away from a big city.

Views on the future of stamp duty holidays

In the future, stamp duty holidays could bring back the buying frenzy the UK saw in the aftermath of the pandemic. However, it is also important for the government to collect taxes to invest back into the economy so it is not sustainable in the long term.

Also, while the implementation of the holiday is good for the economy, the scheme doesn’t really benefit those looking to use properties as an investment because the holidays the UK have had so far still tax those buying second homes and using buy-to-let mortgages.

What this means is after there is an initial mass buying in the property market, demand will level off as those looking to buy property frequently as an investment will have to wait for the right economic period and for other factors to fall into the place in order to buy a property.

Where do England and NI stand today as off today on stamp duty?

In the UK and Northern Ireland, in 2022, the rates for stamp duty are almost where they were pre-pandemic with an exception for buyers purchasing homes with a lower value.

In 2022, homes up to £250,000 in value bought will have 0% stamp duty taken from them. Prior to June 2020, homes up to £125,000 would have 0% taken off of them and homes over this amount up to £500,001 would pay a 2% stamp duty. In 2022, homes over £250,001 jump up to a 5% stamp duty, removing the previous 2% band.

When looked at holistically, these recent stamp duty changes only really affect those buying cheap homes and most homes, especially in London are nowhere near that price. As well as this, cheaper homes have never contributed the most in tax under stamp duty anyway.

So with all things considered, these changes aren’t that beneficial for the UK population as a whole and the government will continue to collect a very similar amount of tax they were doing before. Yet, this is probably necessary as a result of the current bleak economic climate in the UK as of 2022.

A woman calculating if fSDLT will return in the future

In summary

The stamp duty holiday across the UK is seen as a success for many. However, in recent times with the rise of interest rates, the fact that stamp duty has been slightly reduced doesn’t have much of an impact. 

Overall, the use of stamp duty holidays certainly has an impact on house prices but the rates at which stamp duty holidays are changed are hard to wrap your head around and determine if they have a real benefit to the economy.

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Donnell Bailey property expert

Donnell Bailey

Property expert

Donnell is a property expert focusing on the property market, he looks at a combination of legislation, information from property managers, letting agents and market trends to produce information to help landlords.


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