How we cheered when Rishi Sunak announced a six-month Stamp Duty holiday back in July.
Here was one of the worst taxes on the books finally getting the pummelling it deserved. And, perhaps, this temporary measure could be the precursor to a longer term reappraisal of property taxes.
Though he didn’t quite scrap it entirely, Sunak got rid of the major portion of stamp duty on primary residences priced from £125,000 to £500,000, meaning almost nine in 10 buyers would pay no tax.
So far, so welcome.
There’s a problem though. By introducing the holiday at relatively late notice and for a pretty short period, they have deliberately created a spike in demand which has inundated the mortgage, surveying and estate agency industries, whose manpower is obviously not unlimited. HM Land Registry and local authorities are also struggling to keep up with demand.
Completion times have therefore got longer at just the time when people are under the most time pressure to complete, and Covid restrictions mean surveys have been put on hold for weeks on end.
The result is that a demand bottleneck is about to meet a cliff-edge, with thousands of would-be buyers scrabbling to get their transactions over the line by March 31. Miss the deadline and it could mean an extra £15,000 in tax payments. That’s not just a financial headache, but for many buyers will be enough to scupper their purchase entirely. (There is a related problem with buyers rushing to get transactions over the line, which is that some may be tempted to ignore legal or financial issues which come back to bite them in the future – there’s a reason property transactions take a long time and involve a lot of box-ticking, after all.)
All of which means there is a compelling case for the Chancellor to extend the stamp duty holiday at least for another few months, if only to counteract the delays caused by his government’s own policies.
But given the increased dynamism we’ve seen in the housing market since his announcement, with transaction volumes well up on previous years, there’s now a compelling case to not only extend the holiday, but make it permanent, or better still, scrapping SDLT altogether.
The charge sheet against SDLT is long and ignominious, but it boils down to that old maxim that the more you tax something, the less of it you get. By increasing transaction costs it discourages people from getting on the housing ladder, and perhaps just as importantly, dissuades older people from downsizing – after all, why pay a huge premium to trade down your property when you can stay put and pay nothing? It’s not just buyers who suffer, of course. Sellers also lose out, with one study suggesting the burden of the tax is actually split 60:40 between buyer and seller.
So, while it would certainly be an exaggeration to blame the housing crisis on SDLT, it has exacerbated an already bad situation, particularly in London and the south-east. Some of that is captured in bald numbers about prices, loan-to-value and transaction numbers, but the human cost is also immense ,with families crammed into unsuitable properties and elderly people incentivised to stay in homes that are both too big and unsuited to their needs.
The main argument against scrapping stamp duty is that it raises about £12bn a year or so for the Treasury. Yet, as my CPS colleague Tom Clougherty set out in an excellent recent paper, in a world without stamp duty, much of that revenue loss could be offset by gains from other levies and an increase in new-builds.
The latter point is a crucial element of the Stamping Down report written last year by another colleague, Alex Morton. As he notes, a higher volume of transactions “act as a signal to housebuilders that the market is in good health, and the more people are moving, the greater the potential customer base for new build properties” – that should be music to the ears of a government that wants to build 300,000 new homes a year in England by the mid-2020s.
And if the Chancellor wants to make up any lost revenue, there are less economically damaging ways of taxing property that could replace SDLT, such as revamping council tax or introducing an annual property tax.
At last week’s Spending Review, Mr Sunak showed he could dole out money with the best of them, increasing departmental budgets even when debt is going up by nearly £400bn. If he wants to send a clear signal that his government wants to get the economy moving in 2021, he should approach growth-enhancing tax cuts with the same alacrity – and send a clear message that Britain’s housing market is open for business.
Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.
