Stamp duty is expected to rise more widely from 1 April 2025 after Reeves did not announce an extension to the current reduction on rates.
What is stamp duty?
Officially called Stamp Duty Land Tax (SDLT), stamp duty is a tax paid at the point of purchasing a property. There are different taxes in Wales (the Land Transaction Tax) and Scotland (the Land and Buildings Transaction Tax) that are not directly affected by the Budget announcement.
In England and Northern Ireland, SDLT is charged at a staggered rate depending on the property sale price, with each portion attracting a different rate.
First time buyers receive a discounted rate. There is no SDLT up to £425,000 and 5% on the portion from £425,001 to £625,000. To be eligible, it must be the first residential property you – or anyone you are buying with – has ever purchased. It is also a requirement for the purchase price to be £625,000 or less to claim the relief.
Currently, residential property purchases are taxed at:
- 0% up to £250,000
- 5% on the portion from £250,001 to £925,000
- 10% on the portion from £925,001 to £1.5 million
- 12% on any remaining portion
First time buyers receive a discounted rate. There is no SDLT up to £425,000 and 5% on the portion from £425,001 to £625,000. To be eligible, it must be the first residential property you – or anyone you are buying with – has ever purchased. It is also a requirement for the purchase price to be £625,000 or less to claim the relief.
If, after buying the property, it is not the only residential property you own, you will now need to pay 5% on top of these rates. In some cases, this can be refunded if the previous main home is sold within three years.
How does stamp duty work for second homes?
Most property purchases involve selling your existing home and buying your new one on the day you complete. If the purchased property is not being bought to replace a main residence but instead as a ‘second home’, the buyer will need to pay an additional rate of stamp duty. From 31 October 2024, the surcharge for additional homes will rise from 3% to 5%. We have provided a summary of how the additional rate is applied below.
Stamp Duty Thresholds - Main Residence / Additional property
| House purchase price | Main residence - Stamp Duty payable | Additional property - Stamp Duty payable prior to 31 October 2024 | Additional property - Stamp Duty payable from 31 October 2024 |
| Up to £250,000 | 0% | 3% | 5% |
| £250,001 to £925,000 | 5% | 8% | 10% |
| £925,001 to £1.5 million | 10% | 13% | 15% |
| Over £1.5 million | 12% | 12% | 17% |
Stamp Duty example - Purchasing an additional property
If the buyer was making a £500,000 additional property purchase, they would have to pay extra stamp duty. With the changes made in the 2024 budget, the calculation would be as follows:
| House price | Percentage rate | SDLT due |
| Up to £250,000 | 5% | £12,500 |
| Above £250,000 and up to £925,000 | 10% | £25,000 |
| Total SDLT due: £37,500 | ||
Announcing the changes during her 2024 Budget speech, Reeves said: “We are increasing the Stamp Duty Land Tax surcharge for second homes, known as the higher rate for additional dwellings, by two percentage points to 5 per cent from tomorrow.
“This will support more than 130,000 additional transactions from people buying their first home, or moving home, over the next five years.”
What effect will the stamp duty changes have?
The immediate effect of increasing stamp duty on second homes is that it becomes more expensive to purchase an additional property that is not going to be your only home. However, there may be knock-on effects that take time to fully come into view. For example, some commentators have warned that rents may go up as landlords pass on higher purchasing costs to tenants.
It could also trigger a slowing down in property sales in areas with a significant level of second home ownership, as potential buyers are put off by higher rates of stamp duty.
Ultimately, it will take time to see the full picture of how this change will influence the housing market for renters, first time buyers and landlords.
What will change when the stamp duty holiday ends?
While the additional stamp duty for second home purchases was announced to come into effect almost immediately, there are bigger changes on the horizon that will reach far more property buyers. From 1 April 2025, the thresholds at which people start paying stamp duty will revert back to the levels set before temporary changes were introduced in 2022. According to Leeds Building Society, the changes will result in buyers having to pay stamp duty on 93% of properties on the market in England.
The changes will mean from 1 April 2025, stamp duty is charged at the following rate.
| House purchase price | Main residence - Stamp Duty payable from 1 April 2025 |
| Up to £125,000 | 0% |
| £125,001 to £250,000 | 2% |
| £250,001 to £925,000 | 5% |
| £925,001 to £1.5 million | 10% |
| Over £1.5 million | 12% |
First time buyers will still receive a discounted rate, but the relief will be reduced to 0% up to £300,000 and 5% on the portion from £300,001 to £500,000. You cannot claim the relief if the price is over £500,000.
This means someone buying their first home for £425,000 in February 2025 would pay no stamp duty, but if the purchase completed in April 2025, they would need to pay £6,250. There is an expectation that the government is not yet done with plans to reform SDLT, so these assumed changes may yet be adjusted before they come into force next year.
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