What would happen if Rishi Sunak’s kite flies?
On occasions it is best to take the Sunday papers with a pinch of salt. Not that this statement should put anyone off buying one; even though reading is becoming increasingly e-based through smartphones and tablets, it never feels quite as good as slowly turning the pages of a “proper” paper on that one morning of the week when most of us actually have time to absorb the full text beneath each headline.
However, to clarify my opening sentence, some stories should come with a warning, in particularthosepolitical“exclusives”relating tochangestopersonalandcorporatetaxation.
Thepaperswerefullofthisaweekpastsunday,therevelationbeingthatthechancellorof the Exchequer, Rishi Sunak, was considering abolishingstampdutyandreplacingitwithan annualpropertytaxbasedonthevalueofeach individual home. However I remain unconvinced. This seemed to me to be one of those “feeler” stories that are increasingly common nowadays, i.e. float an idea and then get a measure of public reaction before actually deciding to take things further or not .
Nowirealisepropertytaxationisadevolved matter which means Scotland has the power to go its own way on LBTT (our equivalent to stamp duty). However, while Boris Johnson has been regularly accused of being “one stepbehind”nicolasturgeononoverallcovid policy, it was actually Holyrood that followed Westminster’s lead in introducing an LBTT “holiday”. So if the Sunak proposal was to be made concrete at some time in the future it is quite possible the current Scottish Government would step into line (albeit with a few tweaksjusttoemphasisehowdifferentweare, of course). And if so, what effect would there be on the market here?
Broadly I would be in favour, especially if – as the Treasury seems to claim – an annual property tax instead of stamp duty would be revenue-neutral. Before the temporary tax
holiday, LBTT kicked in on property transactions at £150,000 and above in Scotland with the outlay beginning to rise steeply above the £325,000 price level. But moving home is not always“upsizing”toabetterstandardofpropertyand,therefore,aconsumerchoicewhich peopledonotnecessarilyhavetomake.death, divorce,illnessandinjury,unemployment,all play a part. When people move for reasons such as this is it fair that they should be taxed?
Whether and how people should be taxed for “moving up” is also a matter for debate. It could be argued that those fortunate enough to afford topayforabiggerandsuperiorhouseandgarden that is beyond their actual space requirements can also afford to pay tax on the transaction – just as they would if buying luxury consumer goods. Few would disagree but in Scotland the taxation rateishighly-prejudicedtowardstheupper-middle/top end of the market and often acts as a disincentive.
The end of LBTT (or even fairer rates of LBTT) would also discourage older home-owners with grown-up families to downsize, thus increasing the stock for younger people wishing to move in theoppositedirection.thiswouldespeciallyadd tothechoiceoftop-endpropertiesinandaround Edinburghandglasgowwhichcouldnotbuthelp make Scotland attractive to inward investors.
Asalreadystated,suchascenariomustremain, at least for the moment, speculative. However in principle it does seem not quite right that our national property tax so discriminates against those who move over those who remain.
David Alexander is managing director of DJ Alexander