Tax implications of moving home in England & NI

The stamp duty land tax (SDLT) holiday continues to dangle a big carrot in front of homeowners, many of whom can save up to £15,000 by moving before 31 March 2021.

House sales in England and Northern Ireland shot up by 15.6% in August 2020, followed by a 21.3% increase in September after Chancellor Rishi Sunak announced the temporary tax break on 8 July 2020.

A third (33%) of buyers plan to spend the money they saved from the tax break on home improvements and renovations, filtering down through to tradespeople.

People’s priorities continue to change due to the pandemic, with estate agents reporting increased demand for residential properties that have more space in the form of a home office and a garden.

A rush is now on for many movers to complete purchases, and in most cases the sales of existing homes, before the previous SDLT rates kick in from 1 April 2021 (subject to change).

Stamp duty land tax

From 8 July 2020 until 31 March 2021, the tax-free threshold for SDLT on properties in England and Northern Ireland has been raised to £500,000 .

According to the Government, this means nearly 90% of people getting on or moving up the property ladder will pay no SDLT at all.With that higher threshold in place, the rates are:

  • Up to £500,000 – 0%
  • Over £500,000 to £925,000 – 5%
  • Over £925,000 to £1.5 million – 10%
  • Above £1.5 million – 12%

If you are buying an additional property, such as a holiday home or a buy-to-let investment, you still benefit from this SDLT holiday. But as before the announcement, a 3% surcharge applies.

Assuming we return to the old SDLT regime on 1 April 2021, it will revert back to the following rates:

  • Up to £125,000 – 0%
  • Over £125,000 to £250,000 – 2%
  • Over £250,000 to £925,000 – 5%
  • Over £925,000 to £1.5 million – 10%
  • Above £1.5 million – 12%

Special rules apply for first-time buyers, however, meaning they’ll have no SDLT to pay on the value of a property up to £300,000, and a 5% rate between £300,000 and £500,000.

SDLT planning

If you’re looking to minimise your tax liability, it’s a good idea to try and get the deal completed on or before 31 March 2021. If your purchase is not completed by then, you will pay the revised rate.

Another thing to watch out for is the additional cost that could come with a delay.

If you have one property and you haven’t finished selling it when you complete the purchase of your new property, your new home will be considered an additional property for that period, so the 3% surcharge will apply to the purchase. You can, however, reclaim this if you sell the property within three years.

If the property you want to buy is priced just above an SDLT threshold, you may be able to use this as a negotiating technique to get the price down – in fact, the house may have been deliberately priced in anticipation of this.

Capital gains tax

If you’re selling your sole, primary residence in 2020/21, it’s likely you’ll be exempt from capital gains tax, because you’ll qualify for private residence relief.

Again, things are more expensive and often more complex if you are selling property other than your primary residence.

If your circumstances mean capital gains tax is chargeable on the sale of your house, the amount you’ll need to pay will depend on your circumstances.

Your annual capital gains tax allowance (£12,300 in 2020/21) can reduce any gain if you sell an investment property, and if more than one person owns the property, you can use their allowance too.

If the property was once your primary residence, private residence relief will be available to reduce the chargeable gain. And if you lived in the property at the same time as your tenants, you might qualify for letting relief, which can reduce the chargeable gain even further.

Once you have worked out whether or not these reliefs are available, capital gains tax will be due at a lower and higher-rate on residential property, depending on your income tax position.

Talk to us about the tax implications of selling your property.