In today’s Budget, chancellor Rishi Sunak said the additional step down of the nil rate threshold, before it is lowered to its normal level of £125,000, was to “smooth the transition”.
The stamp duty extension will cost a further £1.6bn in lost revenue.
HM Treasury estimates it will lose £1.35bn in revenue by extending the scheme into the 2021-22 tax year, with an additional £255m to be avoided by buyers at the end of this financial year.
Sunak said: “The housing sector supports over half a million jobs. The cut in stamp duty I announced last summer has helped hundreds of thousands of people buy a home and supported the economy at a critical time.
“But due to the sheer volume of transactions we’re seeing, many new purchases won’t complete in time for the end of March.
“So I can announce today the £500,000 nil rate band will not end on the 31st of March, it will end on the 30th of June.”
He added: “Then, to smooth the transition back to normal, the nil rate band will be £250,000, double its standard level until the end of September, and it will only return to the usual level of £125,000 from October the first.”
Calls for extension
The SDLT relief threshold was originally raised to £500,000 in July 2020 and the holiday was planned to end in March this year.
The housing market was already trying to catch up with those transactions that were put on hold during the first lockdown. The stamp duty holiday piled more pressure on the sector which resulted in delays in mortgage offers being approved and completions agreed.
Fears that transactions started in January would not make the deadline led to a petition calling for a six-month extension, despite warnings from the housing minister Christopher Pincher that there were no plans to extend the tax break.
A potential extension was then debated in Parliament last month when the petition reached 100,000 signatures. At the time, MPs suggested a phasing out of the policy or an allowance for those who had already exchanged contracts.
During the debate, Jesse Norman, financial secretary to the Treasury, said the policy had worked and acknowledged that it had helped to boost activity in the market. However, he refused to comment on any tax decisions outside of a fiscal event.
A three-month extension to the stamp duty holiday was later speculated following media reports but this was criticised by the industry amid concerns it would create a second cliff edge and push existing issues down the road.
Added pressure and lower savings
Originally, Rightmove estimated that if buyers were given six extra weeks to transact it would allow 120,000 and 160,00 additional transactions to benefit from the tax holiday and save buyers up to £1bn.
However, the lowering of the nil rate threshold to £250,000 after the three-month extension will not provide the same generous savings.
Lucian Cook, director of residential research at Savills, tweeted: “Let’s just get this in context; a £250,000 stamp duty land tax holiday post-June saves a maximum of £2,500; somewhat less than the maximum saving of £15,000 currently available.”
As well as this, some industry professionals have warned that the extension could result in further delays to transactions and put more pressure on the property sector.
Mike Scott, chief analyst at estate agency Yopa, said: “The government should consider the additional load this will place on the conveyancing industry, which may even prevent some of the existing purchases from completing by the new deadline despite the extra time, frustrating home buyers who have been ready to go for some time.
“We would like to see a measure in place to ensure that those sales that were already in the process before this extension was announced will be prioritised.”
Rob Clifford, CEO of Stonebridge Group, added: “While we naturally welcome a busy market, we still appear in danger of having thousands of transactions not completing before this new deadline, which will hurt consumers, and exacerbates the risk of aborted sales, at great cost to both consumers and the wider economy.”