Pressure for stamp duty reform to revive housing market
It brings the Treasury huge revenues but does a recent fall in the tax take show the system is backfiring?
Calls for stamp duty reform have intensified as campaigners claim that a recent drop in transactions is due to would-be buyers trying to avoid the punishing tax. The Government’s recently published figures for April to June show that the overall number of sales liable for the property tax fell by 11pc year on year. Stamp duty receipts in January to March dropped by an annual 9pc.
Mark Bogard, of the Family Building Society, said: “These figures show that we need an urgent re-think on housing policy. The market is gummed up and stamp duty is a major reason. A fully functioning housing market is essential to the country’s economic well-being.”
The drop in the second quarter was partly due to the Government easing the tax burden on first-time buyers. Wales has also been excluded from the figures because its stamp duty governance is now devolved. However, campaigners say more needs to be done to help all home buyers.
Since November, first-time buyers have been exempt from the tax on the first £300,000 of any property worth up to £500,000. This group saved a total of £125m in stamp duty in April to June, 18pc more than the previous quarter. It has saved £284m in tax, relating to 121,500 homes, since the exemption was brought in.
Mel Stride, financial secretary to the Treasury, said: “Once again we can see that our cut to stamp duty for first-time buyers is helping to make the dream of home ownership a reality for a new generation – exactly as we intended.”
But Paula Higgins of the Homeowners Alliance, a lobby group, said stamp duty needed reform beyond helping this type of purchaser.
She said: “By focusing solely on first-time buyers we’re ignoring the needs of large swathes of potential buyers. The massive cost of stamp duty, combined with the other costs involved in buying and selling a home, is a huge barrier to moving.”
Helen Morrissey of Royal London, the insurer, said the figures might not be as rosy as they appeared for first-time buyers as sellers might have increased prices in the knowledge that buyers would save on tax. She said the exemption would be only a short-term solution to fixing the housing market if it was not applied to home movers.
She said: “First-time buyers cannot move up the housing ladder if those ahead of them can’t afford to move, so the market remains clogged. If stamp duty were lower, more people looking to downsize in retirement could free up some of the value in their home to top up their pension. It would also free up family homes for those needing more space.”
Research from the Homeowners Alliance found that 24pc of second steppers saw stamp duty as a barrier to moving.
Mrs Higgins said: “We would like to see a fair housing market where people can move when they need to. At present, stamp duty remains a huge financial barrier to that.”
Mr Bogard agreed that stamp duty had to be restructured to encourage people to move house. He said the current tax system discouraged older homeowners from downsizing and middle-aged owners from moving.
Stamp duty is worked out according to price bands. Nothing is payable on properties worth up to £125,000. Homes worth £125,000 to £250,000 incur a 2pc tax bill, rising to 5pc from £250,001 to £925,000, 10pc from £925,001 to £1.5m and 12pc on properties over £1.5m.
People who buy a second home pay an extra 3 percentage points on top of this. Government figures show that 46pc of all stamp duty is paid on homes subject to the surcharge.
A recent report in the Sun suggested that the Treasury was considering increasing this additional home surcharge in the autumn Budget. A Treasury spokesman would neither confirm nor deny this. The National Landlords Association (NLA) and Residential Landlords Association (RLA) said they had not been briefed on it.
David Smith of the RLA said the surcharge was already “a tax on new housing” in cases where landlords renovated derelict properties and increased housing supply. He called for it to be scrapped in these cases.
He said: “It would be crazy and totally irresponsible to extend a measure that puts landlords off from investing in new housing. Any increase will only lead to a further reduction in supply, adding to the housing shortage and making life more difficult for tenants.”
Chris Norris of the NLA said his organisation also opposed any increase.
Generally, stamp duty has been hugely profitable for the Government. In the 2017-18 financial year the Treasury made £9.3bn from the tax, down from the previous year’s record £11.7bn.
‘The market is gummed up and stamp duty is a major reason’
The Treasury made £9.3bn from stamp duty in the 2017-18 financial year and a record £11.7bn in the previous year