The announcement of a Land Transaction Tax (LTT) holiday on 14th July by the Finance Minister, Rebecca Evans, means that you will pay no LTT on your next home purchase up to £250,000 if you complete between 27th July 2020 and 31st March 2021. For more expensive sales, the portion of the price above £250,000 will continue to be liable for LTT in line with existing rates. The LTT holiday means about 80% of house sales will be exempt from the tax.
The upfront costs of moving have proved themselves to be an obstacle to home-ownership, particularly for first-time buyers. While they’re trying to save up a deposit to buy a property, they’re also paying rent and watching house prices continue to rise, leaving many feeling stuck in a vicious circle. Even those staying longer at home and avoiding commercial rents have found the costs of deposits, fees and taxes to be quite a barrier to entering the property market.
As well as first-time buyers, LTT has become a greater concern for homeowners with many put off buying a more expensive home by the increased levels of LTT now payable. Instead of paying tax to move, a lot of people have chosen instead to stay put and invest their money into their existing home by extending or renovating. As well as increasing the value of their property, they get to see, feel and live the benefits of their investment, rather than watch it disappear in LTT.
But now there is a window of opportunity to save on your next home purchase. Did you have some plans that you put on hold? Could now be the time to bring forward your move? Or should you simply take advantage of the opportunity that now presents itself?
Let’s look at a few scenarios to see whether a move is right for you.
FIRST TIME SELLERS
If this will be the first time you sell a property, then it’s likely your home is suitable for first time buyers. And you may have bought your first home as a springboard to get onto the property ladder, with a view to selling when the right moment came.
It’s also possible that your next home would usually attract a hefty sum in LTT, so you could benefit from additional demand for your existing property as well as a healthy saving on your next one.
Call us old-fashioned, but that sounds like a pretty good position you find yourself in. Is now the time to give yourself some extra space? Or for you and your partner to buy together for the first time? Maybe you’re thinking of starting a family. The savings on LTT could make now a good time to fulfil those plans.
Home life changes in so many ways. Families get larger which means more bedrooms and living space; people start working from home and need a room for a study; sometimes it’s down to a vinyl collection or other hobby that needs a place of its own!
All these are tangible motives to move regardless of any financial incentives from the Government, so if that’s where you’re at, it seems you’re already at the right time to be thinking of selling.
Having a specific reason to move is a great way to make an unclouded decision without trying to strategize around picking the right moment, but now you get to make your move at a time of increased demand and to save on LTT at your next home.
People downsize for many reasons, but the act of downsizing isn’t necessarily about money. It can also be an emotional experience, so it’s sensible to look at the full picture to avoid rushing into a move before you’re ready.
The main reason for downsizing is when a family’s children have left home, leaving parents with a bigger property than they need or can handle. But many people downsize to move to a more expensive area when location and lifestyle become more important than square footage or number of rooms.
If you’re downsizing to a remote cottage somewhere where prices are below or near the previous threshold for LTT, then the savings you’ll be making are either zero or negligible, so your plans don’t need to be run by the LTT holiday. Rather than getting caught up in the euphoria, simply ask yourself whether now is the time you’d like to make the change.
On the other hand, if the value of the property you’d like to buy would usually attract a large LTT charge, then maybe now is a good time to put your plans into action. The savings could give you a head start in the lifestyle you’re looking forward to.
EXITING THE MARKET
If you won’t be buying another property after you sell your existing one, the LTT holiday will make no financial difference to your move which means your plans don’t need to change from a monetary point of view.
However, the holiday was designed to inject the property market with a boost of confidence and activity as we come out of lockdown, and that increased level of interest from buyers has instantly translated into an extremely busy marketplace.
We’re not in the business of predicting what may or may not happen in the coming months, but there is definitely a moment happening right now. So our advice to you is to consider whether taking advantage of the current activity is something that will work for your life and plans.
BUYING A SECOND HOME
The LTT holiday is designed to help first time buyers get onto – and existing homeowners to move up – the property ladder, and does not apply to investment properties or second home purchases. These transactions also attract the Higher Residential Rates which are tiered from 3% to 15%, depending on the value of the sale, and which are still in place exactly as before.
Therefore it’s simply business as usual if you are looking for your next buy-to-let, a holiday investment, or a second home as there will be no financial changes to whatever plans you either have now, or had at the point of the Government’s announcement.
Hopefully exploring the different stages of home-ownership and how the LTT holiday could affect you has given you some clarity around moving home or purchasing another property.
Whether or not it’s the right thing for you to be considering right now, we’re here to help you make the best decision, so do get in touch if you’d like to talk about any aspect of selling your home or buying another property.