Four years after the last round of unpopular reforms, it’s time this tax was stamped out.
Ever since George Osborne surprised many by reforming stamp duty land tax in his 2014 Autumn Budget, many leading figures in the property industry have been warning of dire consequences – particularly in London and south-east England. Four years on, is it time their concerns were heeded?
Stamp Duty Slab Structure
One of the primary reforms was to fundamentally change the UK’s slab structure for stamp duty.
From an individual’s point of view, the level of stamp duty imposed on the purchase of a home costing more than £700,000 is now prohibitive. These days, that figure would barely cover the cost of a perfectly ordinary family home in London.
What all this means is that people are choosing not to move. That has implications for Treasury coffers, but it also has an impact on the development market. Developers won’t build if they don’t feel confident of being able to sell homes. Given that most affordable housing is either built directly by developers or funded through contributions, any reduction in development activity is bad for everyone.
So, what to do? At the less radical end of the spectrum, the government could simply adjust stamp duty bands so that the higher rates kicked in at a higher price point. At around £5m, the tax would genuinely target the wealthy, rather than ordinary families who happen to live in areas with high prices.
If the government was unwilling to abolish stamp duty for all, it could remove it for older people looking to downsize from homes that are too large and increasingly unaffordable for them in terms of maintenance. This would allow older people to move cheaply, potentially releasing capital to fund their retirement, and would free up more stock for young families.
Alternatively, the government could introduce some form of support for those moving up the housing ladder, such as allowing purchasers to pay off stamp duty over a number of years, rather than demanding a lump sum. This would create an initial hit to Treasury income, but in time would balance out. More radically, the system could be turned on its head and a new tax levied on sellers rather than buyers. This would create a disincentive to sell, but it would also have the advantage that sellers tend to be in a better position financially to shoulder an additional tax burden.
Whether the government chooses limited reform or a comprehensive restructuring of property tax, it is clear that something has to be done. Privately, at least, many politicians know this to be the case – they’ve just been too wrapped up in Brexit to be able to do anything about it.
Should the government remove stamp duty on certain properties? More at RICS website