Stamp duty increased from 3% to 5% for second homes in Autumn Budget 2024

Stamp duty is set to rise almost immediately from 3% to 5% for those buying a second home, after being announced in the Autumn Budget 2024.

Chancellor Rachel Reeves said the move aimed to support first-time homebuyers.

We look at the reaction to this tax rise and how the move could affect those buying homes and house prices.

Stamp duty for second homes increased by 2%

Stamp duty for those buying a second home has risen by 2 percentage points, with homebuyers now facing a 5% charge when buying a property.

Chancellor Reeves stated: “In our manifesto, we committed to reforming stamp duty land tax to raise revenue while supporting those buying their first home.”

This change, part of the “Higher Rate for Additional Dwellings,” the government claim, is intended to support over 130,000 transactions for first-time homebuyers and movers over the next five years.

Reaction to rise in stamp duty

The decision to raise stamp duty for second homes has drawn criticism from market experts.

Tim Bannister, Rightmove’s Director of Property Science, said: “Increasing stamp duty on additional home purchases by 2% means that, based on the average asking price for a home (£371,958), a landlord could face an additional charge of more than £7,000 from tomorrow when buying a property.

"In the short-term, some landlords may need to pause for thought, but in the longer-term it becomes yet another charge that landlords wanting to invest in buy-to-let will have to become accustomed to and factor into their decision making. Overall, we need more homes in the rented sector not fewer, but in recent times we have seen record levels of stock leaving the rental market."

Paresh Raja, CEO of Market Financial Solutions, said: “The Government had warned of tax rises to fill the black hole in public finances, so there was apprehension across the property and finance sectors heading into today’s Budget.

"Unlike previous budgets – think Kwarteng’s mini-budget – Reeves opted for a more measured approach, refraining from pulling any proverbial rabbits out of the hat – although the increase to Stamp Duty surcharge on second homes was unexpected. This approach should calm the lending and property markets, easing some of the uncertainty that has lingered in the lead-up to this announcement."

Previous cut set to revert early next year

On September 23 2022, the previous Conservative Government increased the threshold for Stamp Duty Land Tax (SDLT) on residential property purchases in England and Northern Ireland from £125,000 to £250,000.

First-time buyers also benefitted from an increased threshold, paying no SDLT on properties up from £300,000 to £425,000, with the maximum property value for claiming First-Time Buyers' Relief raised to £625,000, providing a potential saving of up to £11,250.

However, these changes are temporary and are due expire on March 31 2025, as outlined in the Stamp Duty Land Tax (Reduction) Bill, which includes a ‘sunset’ clause.

Changes seen as 'unwelcome' for buyers

Tim Bannister claims the upcoming changes to stamp duty thresholds "will be an unwelcome additional charge next Spring".

The threshold reducing from £250,000 to £125,000 means that buyers purchasing properties above this threshold could face up to £2,500 more in stamp duty and potentially over £3,500 for first-time buyers.

He predicts there will be a "rush of buyers", especially first time buyers, who will try and complete purchases before the deadline but warns they "will need to act quickly".

Bannister claims with this adjustment the percentage of properties exempt from stamp duty will fall from 58% to 37%, a significant reduction that will particularly affect regions with higher property prices, like London and the South East.

Bannister also points out that the average completion time for property sales is currently 152 days, coincidentally the same duration from the Budget announcement on October 30, 2024, to the proposed stamp duty deadline on March 31, 2025.

Tim Bannister

Tim Bannister joined Rightmove in 2010, initially working in our lettings division before transitioning his focus to insights. As the current Director of Property Science, Tim leverages data, technology, and analytics to create distinctive insights that inform and guide property-related decision-making processes.

What is stamp duty? 

The Stamp Duty Land Tax (SDLT) is a tax paid when you buy a property in England and Northern Ireland.

The amount of stamp duty you pay depends on several factors, including:

• Purchase price
• Whether the property will be your main residence
• When the purchase is made
• Whether you're a first-time buyer

Stamp duty is devolved in Scotland – Land and Buildings Transaction Tax (LBTT) instead being payable – and Wales – the Land Transaction Tax (LTT) replacing SDLT in 2018 – so any changes will not affect current thresholds.

Will the stamp duty deadline be extended?

Prime Minister, Keir Starmer, confirmed the Labour Government were not going to renew the stamp duty cut made by the Conservatives in 2022 so the deadline of March 31st will be the last time homebuyers will benefit from the cut for the foreseeable future.

On BBC Radio 5 Live in June 2024, Starmer confirmed to a caller that Labour was "not going to renew it” when asked about the stamp duty cut.

According to Homebuilding & Renovating's sister title MoneyWeek, it's also unlikely that the SDLT threshold will be addressed in the upcoming Budget: "What’s more, it looks unlikely that Labour will extend this form of relief when chancellor Rachel Reeves delivers her first Budget on 30 October."

Will this affect house prices?

An increase in stamp duty will "plunge the British property market into a desperate situation," according to one property expert.

According to David Hannah, Cornerstone Tax’s Chairman, this change could lead to more people relying on short-term loans to cover unexpected costs, with 14% of Brits already taking out such loans for stamp duty-related expenses.

He claims the threshold change will increase the tax burden for many, with the average homebuyer facing an increase in stamp duty from £2,768 to £5,268.

Hannah stated: “Does this Chancellor and Prime Minister not understand that if they want 1.5 million new homes, they cannot drive landlords out of the market, incur additional charges for first-time buyers and freeze up working capital for developers — which can only be available if these homes are selling.

“These former two measures have further deterred market entrants and if I were a builder, I’d be freezing development until there’s a ready market. Looking at this combination of measures alongside the current structural issues plaguing the property market, it makes previous governments look like Nobel Prize laureates.

"I expect stamp duty receipts to fall significantly, then to flatline in Q1 2025, potentially plunging the British property market into a desperate situation. In essence, reducing stamp duty thresholds means that it will ultimately be the consumers who foot the bill."