Make stamp duty work for everyoneWith the government taking a record-breaking £1.3bn in stamp duty in July, should the ‘holiday’ be all year round?
As we approach the end of September and the final throes of the (partial) stamp duty holiday, there is bound to be plenty of soul searching throughout the industry on what is now the best way forward.
Of course, after this part of the holiday ends, the tax will return to its pre-8 July 2020 levels. In England — for main residences, at least — it means the zero rate returns to below £125,000, the 2% rate to between that figure and £250,000, and the 5% rate to above £250,000 and up to £925,000. Those purchasing an additional property can add an extra 3% to that.
It seems rather obvious to suggest that the number of purchases will dip as a result of that return to ‘normality’, and more buyers will need to factor in much larger stamp duty costs when weighing up their purchase decisions.
In August, the Halifax deemed the average house price to be more than £261,000; Nationwide said it was lower, at around £244,000; and the Office for National Statistics put it at £266,000. You don’t need me to tell you that, on average, UK homeowners are going to be paying at least 5% stamp duty on their purchases.
What could, or rather should, happen next? Well, first, let’s highlight how the government made £1.3bn in stamp duty land tax alone in July. There is a 14-day window in which to pay and, clearly, after the large number of June transactions, it was always going to be high.
But that figure is a record and it is based on a holiday period where purchasers paid zero stamp duty up to £500,000. Buyers of additional properties had to pay just the extra charge. But look at what it delivered for the government in terms of tax take.
Of course, there is a good argument to suggest the numbers of transactions generated by the holiday might not be sustainable if it was made permanent. But there is also a good argument to suggest this kind of stimulus would continue to fuel interest and activity, and transaction numbers would be lifted as a result.
Where might the money that would have gone on stamp duty be spent? How might the wider economy benefit? And, lest we forget, the government stamp duty take — given what house prices are doing — could also continue to run at levels that make such a decision to permanently introduce a ‘holiday’ even more attractive.
There is, however, a caveat — one highlighted by a recent report commissioned by the Family Building Society, entitled, ‘Lessons from the Stamp Duty Holiday’. This is the ongoing impact on prices, the inflation it may be generating, and the significant issues this presents for buyers. Did the stamp duty saving merely inflate offers for properties — pricing first-time buyers (FTBs) in particular out of the market even further?
Making stamp duty zero for all FTBs regardless of the property price is one option that probably should be brought in but, even so, the assessment of what may happen to house prices is undoubtedly relevant.
However, to what extent are those rises a result of supply-side issues rather than just stamp duty holidays? Fundamentally, it is the lack of supply that drives up prices, not a tax break that is a much smaller percentage of the cost of buying a home. Certainly a permanent stamp duty holiday makes much more sense in an environment where we are hitting our housing supply targets, but that doesn’t mean it shouldn’t happen before those targets are hit.
Stamp duty is unlikely to go away. Those calling for its abolition are probably shouting into a hurricane. But there are ways to make it work for all — to incentivise the market and deliver a fair tax take for the government. The evidence of the past 14 months perhaps gives even greater momentum to a permanent holiday.