The Chancellor is likely to confirm in the Budget that the temporary increase in stamp duty thresholds will not be extended, which means that the 'nil rate' band, or the point at which you start paying stamp duty, for home movers will drop from £250,000 back to £125,000 from 1st April 2025. For first-time buyers, the threshold will decrease from £425,000 to £300,000.
This change is expected to drag approximately 310,000 more property purchases in England into paying stamp duty annually.
The impact of these changes will be felt differently across the market. Home movers could see their stamp duty bills increase by up to £2,500, while first-time buyers may face a more substantial rise of up to £11,250. For more affluent households, particularly downsizers who have built up property equity over the years, this increase is unlikely to make a material difference to their willingness to move. However, it will change the sums significantly for first-time buyers, particularly across the South of England.
Given that it currently takes an average of 126 days between a sale being agreed and completion, most buyers hoping to beat the deadline will need to agree a deal soon.
Reducing the nil-rate SDLT band will mean that nearly nine in ten property purchases in England will be subject to a stamp duty bill. According to our analysis of Land Registry data, 56% of homes sold in England this year were above the £250k threshold. However, if the nil-rate band falls to £125k, this will push this figure up to 88%. Consequently, the average mover purchasing a home in England for £300,830 will see their bill rise from £2,542 to £5,042.
Regional disparities
The changes are set to have a disproportionate down south. While a higher share of buyers in the Midlands and North of England will find themselves newly subject to stamp duty on properties they might have previously purchased tax-free, it's buyers in the South of England who will bear the brunt of the increased costs in cash terms.
In London, the impact will be particularly acute, with 99% of homes sold so far this year above the £125k band, compared to 56% in the North East. This means that most buyers in the capital will see their stamp duty bill rise by the full £2,500 from April 2025.
However, while buyers in the Midlands and North are less likely to have to stump up the whole extra £2,500, more will find themselves paying a stamp duty bill. For example, the share of movers in the East Midlands paying stamp duty will nearly double, from 41% to 90% after April. Based on the average purchase price of £243,100, they will go from paying nothing to £2,362.
First-time buyers will be hit hardest
For first-time buyers, the outlook is especially challenging. The number paying stamp duty is anticipated to triple, rising from 8% to 26% nationwide, and to 71% in London. This increase could significantly alter the affordability picture for those looking to step onto the property ladder, particularly in the capital and the South of England where property prices are already a bigger barrier to entry.
A first-time buyer purchasing a home just under the current £625k threshold will face the steepest increase. For example, the stamp duty bill on a £620,000 first home will rise from £9,750 to £21,000. Given that stamp duty is a cost that needs to be paid for in cash and can’t be borrowed, new buyers facing the tax could find it a costly increase that could delay homeownership.
For example, higher stamp duty bills could significantly reduce a first-time buyer’s ability to borrow to fund a home between the existing and incoming thresholds (£300,000 to £425,000). Assuming the cash needed to pay the bill lowers their deposit to 5%, having to find an extra £1,000 to pay stamp duty would reduce their maximum purchase price by £20,000.
In London, the share of first-time buyers who pay stamp duty is set to rise from 37% to 71%. Meanwhile, in the North East, just 3% of buyers purchasing their first home will face a tax bill.
A whole lot of history
It's worth noting that the £125,000 nil-rate band, first introduced in 2006, has not kept pace with property price inflation. This is the main reason why more buyers have been dragged into paying a tax bill.
Had the threshold risen in line with the 84% increase in property prices since its inception, it would stand at approximately £267,000 today.
This disparity between threshold and market reality underscores the growing tax burden on homebuyers over the past two decades. While this latest change will be felt mostly by first-time buyers, generally most of the increase in stamp duty rates over the last 20 years has hit the top end of the market and has weighed on the number of homes changing hands.
