Is SDLT damaging the property market?
Stamping tax was originally a levied on documents from circa 1600’s and in property transactions “Stamp Duty Land Tax” remained relatively low at 1% until 1997. This allowed homeowners to be “footloose” giving them a choice to sell and move to wherever jobs might be available in the UK with relatively low transaction costs. Pursuant to Labour’s election win in 1997 SDLT was increased seemingly to converge with EU financial tax harmonisation. Current housing SDLT are extremly high and apply from 2% (above £125,000) graduating to 12% (over £1.5m) but in Wales where the Welsh Assembly have tax-raising powers from April 2018 their housing “land transaction tax” applies from 3.5% (above £180,000 ) graduating to 12% (over £1.5m) but the LTT applied to price thresholds between these rates seem punitive indeed. In the fiscal year 2017/18 HMRC stamp duty land tax receipts topped £13Bn.
The other side of the coin reveals record number of estate agents at risk of insolvency in 2017 according to Moore Stephens Chartered Accountants. Readers will not escape noticing estate agents’s windows showing fewer properties with larger individual photos to fill the space. The housing market has cooled since the EU referendum however there are significantly less transactions by volume in England in 2018 compared with the period 1999 (119,652) to 2007 (121,246) during the Blair years. The evidence points towards fewer transactions because of higher SDLT although HM Gov have made up the difference by increasing SDLT rates.
Reducing SDLT would reverse the position, allowing more transactions, helping people move (and no longer feeling trapped because of the huge cost of moving house) allied with estate agents benefiting from greater sales (underscoring rents, jobs and town centre vibrancy) hence everyone wins. The question is, however, with Brexit hanging in the balance whether the new prime minister is prepared to take such action. Any reduction in SDLT can only be good for housing transactions. SDLT for commercial property and development will be examined in another post.
References:
- https://ec.europa.eu/taxation_customs/sites/taxation/files/15_01_2019_communication_towards_a_more_efficient_democratic_decision_making_eu_tax_policy_en.pdf
- https://www.stampdutyrates.co.uk/historic-rates.html
- https://gov.wales/land-transaction-tax-rates-and-bands
- https://www.statista.com/statistics/284328/stamp-duty-land-tax-united-kingdom-hmrc-tax-receipts/
- http://www.moorestephens.co.uk/news-views/july-2017/19-of-uk-estate-agents-are-at-risk-of-going-bust
- http://lselondonhousing.org/2017/11/a-taxing-question-is-sdlt-suffocating-the-english-housing-market-a-report-for-family-building-society/