Here we go again! Stamp duty changes in the government’s mini-budget.
A number of changes are made to the Stamp Duty Land Tax (SDLT) regime but in the main, the changes increase the amount that a purchaser can pay for a residential property before they become liable for SDLT.
What are the Stamp Duty changes from 23 September 2022?
The residential nil rate tax threshold is increased from £125,000 to £250,000. The nil rate threshold for First Time Buyers’ Relief is increased from £300,000 to £425,000 and the maximum amount that an individual can pay while remaining eligible for First Time Buyers’ Relief is increased to £625,000.
The changes apply to transactions (a biggie for our already busy legal finance teams) with effective dates on and after 23 September 2022 in England and Northern Ireland. These changes do not apply to Scotland or Wales which operate their own land transactions taxes. There are no changes in relation to purchases of non-residential property by the way.
Property and Legal Finance Professional Feedback
Here are some thoughts from legal accountants, property lawyers and estate agents!
I guess if firms have money in client account based on current stamp duty rates, then they are cut they could be holding more than they need in the client account. They will need to review and return any excess promptly in accordance with the accounts rules. That’s my compliance view there may be other operational aspects that Quill and Cashroom may advise on.
Victoria Fish, ILFM Executive Council
Having seen the pressure and stress that the stamp duty holiday placed on law firms, I believe it’s more important than ever for firms to ensure their accounting processes are secure and efficient. This should then enable finance teams to flex and scale resource allocation to meet the inevitable spikes in demand.
Part of Mr Kwarteng’s ‘new growth plan’ was to cut Stamp Duty, with the nil rate band doubling from £125,000 to £250,000. This means 200,000 more people every year will be able to buy a home without paying any Stamp Duty at all – and the standard buyer in England will save £2,500, according to Gov.uk.
Mr Lewis continued answering questions to his many followers, one pertinent question was:
Q) Will they still get the new rates if they have exchanged homes but not yet completed?
A) In general, yes, Stamp Duty is crystallised at completion (though there can be some exceptions – check with your solicitor).
Bank Feedback
The HSBC became the latest voice to warn of a looming downturn in the housing market. According to the official house price index, UK house prices grew by 15.5% in the 12 months to July 2022. However, such a comparison is arguably misleading as the earlier Stamp Duty holiday came to an end on 30 June 2021.
At the time of writing, we are just all slightly in limbo, aren’t we?
“The positive is that the SDLT cuts announced are permanent which will ease pressure on law firms, and their accounts departments, as there shouldn’t be a crazy rush to the finish line as we saw with previous deadline dates.
Will it have a huge impact on people purchasing houses? I personally don’t think so. We cannot ignore the bigger issues currently facing everyone with the cost-of-living crisis, increase in mortgage rates along with house prices remaining high – not a great combination. Salaries are struggling to keep pace with this level of increases, and this will inevitably subdue the impact of the SDLT cuts.
In my opinion, it is unlikely that these SDLT cuts will significantly improve market activity in the short term, but I do think they will provide benefit in the long term for buyers once cost-of-living and interest rates have stabilised.”
Michael Bates, Client Services Director, Quill
Risk Management
Something that we should also be aware and remind ourselves of is the factor of risk in an increasingly busy and stressed department especially if those departments don’t have good processes in place. Fraudsters are licking their lips at these government and interest rate changes, all law firms could be open to the risk of fraudsters.
Whilst the stamp duty reduction of up to £2,500 on a transaction is welcomed, the current impact it can have has been arguably reduced with the increasing mortgage rates. Given the current economic climate we are unlikely to see it hugely boost transaction numbers nor the confidence of buyers.
When it comes to looking at the impact of rising interest rates, an ILFM advocate and Engage Partner, who often talks at our events and conferences, said:
Rising interest rates will bring a bittersweet reaction from the legal sector. Whilst practices face the unwelcome thought of increased borrowing costs, for many legal practices this increase can be offset, in part, through effective management of client monies. The big 4 high street are reluctant to improve client account deposit rates however there are a few trusted banking providers that are paying many times more than the traditional high street banks. This presents the opportunity for the finance functions to challenge even the best fee earners as the greatest profit contributor within the firm.
Conveyancers and property lawyers, together with their legal accounts’ teams will be keeping an eye on rising interest rates and probable declining mortgage offers come what may. Stamp Duty cuts may just be yesterday’s news.
Tim Kidd, Chief Executive of the ILFM, is very aware our members are already under immense pressure at work. Tim commented on the changes in Stamp Duty:
It’s very apparent that changes with Stamp Duty should be received with a sense of relief for many buyers, yet from a legal finance professional’s perspective, the changes add to ever increasing pressures on already over stretched working days.
Practice Managers and Heads of HR need to be aware of property law and conveyancing firms’ finance support infrastructures, whilst ensuring their software stays compliant and bookkeeping fundamentals are in place.
Let’s see what comes next!
As always, if you’re not a member of the ILFM, it’s an affordable investment of only £120 + VAT per annum. Here’s the link to find out more.