Stamp Duty Land Tax (SDLT) is a vexed subject now. Former Chancellor George Osborne started it when he chose to make it not only a revenue-raising device, but also an object of political power play.
In the autumn of 2014 the coalition Government, headed by David Cameron, anticipated that there could be a hung parliament after the General Election of May 2015, and in order to counter balance the then Labour Party’s ‘Mansion Tax’ at the time, decided to revise the Stamp Duty calculator.
It was clearly a political device, since he reduced the Stamp Duty up to £1m as an election bribe, but increased it hugely above this level, from 7 per cent to 12 per cent. Not content to practically double it, a year later he added the 3 per cent surcharge to this if you owned a second home.
These draconian measures served to distort the marketplace by exciting the lower end and, at the same time, cooling the upper end, such that turnover of properties sold has been reduced by circa 60 per cent.
This is typical of Government’s clumsy interference in markets, where the cure is worse than the disease. The main plank of Osborne’s fiscal discipline was to have a budget surplus by 2020, which the new Chancellor Hammond has revised to a £20bn deficit, having taken account of the new economic circumstances post-Brexit. The irony is that according to the OBR (Office for Budget Responsibility) Stamp Duty receipts will be down by £10bn.
Whilst Stamp Duty is perfectly collectable, it is also perfectly avoidable by homeowners not moving. It has been used by successive governments over the years as an easy revenue-raising device, but never so conspicuously for political ends.
Estate agents and many other ancillary businesses connected to the residential property market are in a parlous state with ‘lay-offs’, redundancies and closures being the order of the day. The ones that are still standing nurture the beacon of hope that the Chancellor will reduce this burden in the next Budget.
It is a lose, lose strategy. First time buyers are further disenfranchised by the runaway market at the lower end, meanwhile the middle to top end has been hit with a sledgehammer, with prices down by up to 35 per cent from the former highs of 2014 and the Treasury losing valuable revenue which, given its deficit reducing strategy, is somewhat foolhardy.
If by lobbying, Mr. Hammond cannot be persuaded to change the higher rate of Stamp Duty, then it is my view that he should consider arranging the seller and buyer to split this liability between them. Although the former will not be happy to pay circa 6 per cent to sell, the latter group will effectively have their liability halved and this may stimulate the dampened market and perhaps, if values rise as a result, then the sellers would be compensated by the growth to balance their tax liability.
One hopes that this innovative suggestion does not disturb the loan to value ratios of lenders, since the net receipts for the homeowners will be slightly less and, therefore, the equity lower. If this is Plan B then it is far better than the worrying situation at present where sitting put is actively encouraged, which works against the liquidity of the marketplace and everyone connected with it.
As things are, the asset owners are getting richer and the non-asset owners are getting poorer. Unlike our European brethren, we are a proud, home-owning country and a growing property market is essential to stimulate the economy generally, and for debt to shrink in relation to equity.