The U.K.’s Stamp-Duty Holiday Lifts London’s Real-Estate Market

[Jeanne Maria]

By Ruth Bloomfield

Sept. 9, 2020 4:00 pm ET

• SAVE
• SHARE
• TEXT

Mary Lee and Andrew Muir were in pessimistic mood when they put their two-bedroom ground floor apartment in the southeast London neighborhood of West Dulwich on the market. They were confident the apartment would sell but, with the U.K. still struggling to contend with Covid-19, not necessarily at its asking price of £525,000.

“I was a little nervous,” said Mrs. Muir, 56, of the home she and her husband bought in 2017 for £485,000. “I had confidence that I would find a buyer. What I was not sure about was whether I would get the price that I wanted because there is a glut of two-bedroom flats for sale in the area. I was really worried about price point.”

She needn’t have been concerned. On July 8, just a few weeks before the Muirs’ property was listed at the start of August, the Chancellor of the Exchequer, the government minister in charge of the British economy, announced that primary homes in England and Northern Ireland priced at £500,000 or less would be entirely exempt from stamp duty. The tax holiday extends to purchases made until March 31, 2021.

Mr. and Mrs. Muir’s living room.PHOTO: VANESSA BERBERIAN FOR THE WALL STREET JOURNAL

Stamp Duty Land Tax, or SDLT as it is known, is a buyers’ tax payable to the government on the sale of all properties in the U.K. Previously, primary home buyers (excepting first-time buyers who already enjoyed certain tax breaks) had to pay up to £15,000 in tax on purchases between £125,000 and £500,000. As part of the tax holiday, buyers can avoid tax entirely on purchases up to £500,000. As the purchase price rises from there, incremental stamp-duty rates apply; those rates are the same as they were before the tax holiday. Second-home and foreign buyers can even get in on the act. They pay higher stamp duty than primary-home buyers, but will see their tax burden reduced, although not eradicated.

Stamping Out (Some) TaxesStamp-duty amounts for U.K.-citizen primary home buyers at different sales prices

SALES PRICENORMAL STAMP DUTY AMOUNTTAX HOLIDAY AMOUNT

£500,000	£15,000	£0
£1 Million	£43,750	£28,750
£2 Million	£153,750	£138,750

Source: Benham & Reeves

The Muirs’ property was sold, subject to contracts, for its full asking price within 48 hours of its first showing. Now that their home is under contract, the couple have been able to make an offer on a house in the historic market town of Midhurst.

Mary Lee and Andrew Muir are now planning a move to the English countryside.PHOTO: VANESSA BERBERIAN FOR THE WALL STREET JOURNAL

THE COST OF BUYING IN BRITAIN

SDLT is Britain’s main property tax. Sellers also have to pay estate-agent fees of between around 1% and 2% of the purchase price. Buyers agents are rarely used.

Both buyers and sellers hire lawyers, and often building surveyors. Fees vary depending on a property’s location, size, and the complexity of the sale.

All residents—whether renters or owners—also pay Council Tax set by their local council, to cover the cost of services such as street lighting and refuse collections. In London, the price for an average property ranges from £780.28 a year in Westminster, central London, to £1,944.39 in Kingston-upon-Thames, in southwest London.

There is no capital-gains tax payable on residential properties when they are sold.

The stamp-duty holiday is an attempt to prop up the British economy as a whole, not just the housing market, which real-estate agents report remained relatively stable during the Covid lockdown. Not surprisingly, the tax holiday stimulated real-estate activity. “There is no doubt that since July 8, there has been an upturn in interest and in offers,” said Stuart Bailey, head of prime London sales at Knight Frank.

During the week ending August 16, according to Knight Frank research, the number of properties sold for £1 million or more in prime central London doubled compared with sales in the same week of 2019. For properties valued at between £750,000 and £1 million, sales were up 119%.

“Historically, we have always sold more apartments than houses, but suddenly the tables have turned, and we are selling more houses,” he said. “It would seem to me that people are having that desire for their own front door, and some outside space.”

This particular trend has also been fueled by a lack of overseas buyers, who traditionally prefer modern apartments to historic, landmarked houses. Mr. Bailey said that overseas buyers have been deterred by the U.K’s strict quarantine rules, which require incoming visitors from all but a handful of exempt nations to quarantine at home, or in a hotel, for two weeks upon arrival.

The kitchen at Mr. and Mrs. Muir’s two-bedroom apartment.PHOTO: KNIGHT FRANK

The master bedroom at Mr. and Mrs. Muir’s apartment in West Dulwich.PHOTO: KNIGHT FRANK

Some overseas buyers—specifically investors from Asia—are still active in London, however. Asian real-estate firm Juwai IQI reported a jump in Chinese demand for U.K. property during July. It found that inquiries about British homes were up 213% compared with July 2019. Executive chairman Georg Chmiel said the tax holiday is feeding activity. Also fueling interest—in April 2021, tax rates will return to pre-holiday levels, and foreign buyers will be hit with a new, additional 2% surcharge.

An Overseas Home for the HolidayForeign-buyer stamp duty amounts in England and Wales.

SALES PRICENORMAL STAMP DUTY AMOUNTTAX HOLIDAY AMOUNTSTAMP DUTY AS OF APRIL 2021

£500,000	£30,000	£15,000	£40,000
£1 Million	£73,750	£58,750	£93,750
£2 Million	£213,750	£198,750	£253,750

Source: Benham & Reeves

According to calculations by estate agent Benham & Reeves, this means that starting in April 2021, the tax payable by foreign buyers on a U.K. property will soar to £40,000 for a £500,000 home (from £15,000 during the tax holiday) and to £93,750 for a £1 million property (compared with £58,750 during the holiday).

Lucian Cook, head of residential research at Savills, suspects the main beneficiaries of the holiday will be equity-rich buyers and investors rather than first-time buyers who are still locked out of homeownership by the need to raise hefty deposits.

Mr. Cook also points out that the cash savings from the tax holiday are fairly modest. Savills calculates that the average saving across all transactions is about 1% of sale price. “It is not a mind-blowing saving, but it is more the psychological importance of the saving,” he said. “People have this overwhelming desire to minimize the amount of tax they pay.”

What £500,000 Buys You in London

PHOTO: MUNDAY'S ESTATE AGENTS

Located in gritty Peckham Rye, southeast London, this 733-square-foot, two-bedroom, two-bathroom flat is in a converted industrial building in a hipster-friendly neighborhood 4 miles from central London. Agent: Munday’s

PHOTO: DEXTERS

This Chelsea apartment, with views of the River Thames and within walking distance of Chelsea’s shops and restaurants, is a top-floor, walk-up, one-bedroom apartment measuring a compact 275.4 square feet. Agent: Dexters

PHOTO: CHESTERTONS

Leafy and family-friendly Putney, in southwest London, is home to this 720-square-foot, one-bedroom apartment. It has a small backyard and is 6 miles from central London. Agent: Chestertons