Trying to cut to the truth about stamp duty
No one likes tax, but since the reforms to Stamp Duty Land Tax in late 2014, there has been even more than the usual level of rancour directed at the tax on property transactions.
But what have its effects really been?
On the one hand, many in the industry bemoan a tax that has a big effect on the new-build sales markets and the prime markets, and discourages downsizing.
On the other hand, it is considerably fairer, cheaper for those not buying a house over £925,000 – the majority of the country – and government tax receipts have gone up.
In the middle sits government. While tax receipts are up, there are those who argue the increase would have been more if the tax had not been changed, and that the government should reduce it to help markets where the number of transactions has slumped.
Estates Gazette takes a look at the stats.
For a cut
The key argument for a cut is that stamp duty has reduced the number of transactions, made it more difficult to move house, and stifled the prime market.
Many of these claims are not entirely true – see the Against panel – but it has still had some negative impacts, though they can be relatively difficult to measure.
First, in the prime London markets, the number of transactions has significantly declined. Ostensibly, this is because the changes to stamp duty made transactions more expensive. However, the reduction in transaction numbers also coincided with a wider slowdown in the prime market – caused by excessive price inflation and wider instability.
An Oxford Economics report commissioned to look into the effect of the tax on the £1m-plus market said that while the government tax cut had been higher because of the changes, the knock-on effect of fewer transactions cost the economy £1.8bn in 2015. In other words, without the tax, there would have been 1,950 more transactions, and £370m more in revenue. There is, however, no counter report to say how many fewer sub-£925,000 transactions there were.
A similar argument has been made for the downsizing market, where stamp duty is seen as punitive on those looking to sell family homes, which in turn has made it harder to free up larger under-occupied homes.
While it is certainly difficult to prove what could have been, even the Office for Budgetary Responsibility has had to revise its forecasted stamp duty take, because of a combination of the higher tax rates and the additional 3% surcharge levied on second homes in April.
Finally, many developers argue for a reduction in the tax because it is affecting sales in the new-build sales market, especially in London, both through the additional 3% and for assets in more expensive tax brackets.
Against a cut
The main argument behind the changes to stamp duty in 2014 were fairness: for those not selling or buying a home over £925,000, it was cheaper, and this still stands.
As the sub-£925,000 represents a far larger proportion of the market, the number of transactions across the UK has not gone down and has, in fact, risen. Between 2015 and 2016, they rose 7.2%.
The government’s total tax take has also increased. According to HM Revenue & Customs statistics, there was a 17% increase in stamp duty take in the year to December 2016, totalling £1.2bn.
Critics argue that this has been at the expense of the £925,000-plus market. First, it is worth remembering that this applies to less than 3% of the total number of transactions each year.
Second, the transactions of £925,000-plus properties have not slowed as much as many would think. According to analysis of Price Paid Data from the Land Registry, the number of transactions for £925,000 and over properties rose by 7.3% between 2014 and 2015. Between 2014 and 2016, despite what appeared to be a more significant slowdown in the market, there was still a 2.6% increase.
Although other arguments have focused on the fact that stamp duty before 2010 was cheaper, this is also not true. Stamp duty on a £400,000 home on the pre-2010 rates would have been £12,500. Post-2014, it would be £10,000.
As with separating out the effects of stamp duty on the prime market from a wider economic slowdown, it is hard to judge the effects of the cut for cheaper properties from the booming sub-£925,000 market, which is supported by cheap lending and supportive government policy.
However, even taking this into account, the effects of the changes in stamp duty for the vast majority of buyers has been beneficial and, as a result, the number of transactions has increased, alongside the tax take.
