Friday 23 August 2019 12:06 pm

Shifting stamp duty burden would hurt first-time buyers

It was an interesting idea – and sounded great for first-time buyers. On Saturday, Sajid Javid appeared to be considering switching the cost of stamp duty land tax (SDLT) from the buyer to the seller in England and Northern Ireland. On Sunday, in a tweet, he made it clear that he did not support the idea. So in rejecting this, was the chancellor acting as a friend or foe of the first-time buyer?

It is difficult to get on the property ladder. First you have to find cash to pay the deposit and then, not only do you have to pay for the property (with the help of a mortgage), you have to find further cash to pay the SDLT.

If you are trading up, you hopefully have some equity that you can release to help pay the SDLT – but as a first-time buyer, you have to find all the money yourself.

So why not have the seller pay the SDLT? They save the SDLT they would have paid on their new property (which would probably have been more if they were trading up), and will have access to cash.

The likely result of any changes is that property prices would rise

But in reality, the price of property is a balance between how much the seller wants to receive and how much the buyer can pay. If the seller has to pay the SDLT, they will put up the price – and if buyers don’t have to pay the SDLT, they can afford to pay more.

Therefore, it is likely that the main result of switching SDLT from buyer to seller would be to increase prices.

There is a further suggestion that even if prices rise, at least first-time buyers will not have to find so much cash up front as they won’t be paying SDLT.

However, there are problems here too. If the seller has to pay SDLT, lenders will worry that, if they have to sell the property because the borrower cannot pay, the first slice of proceeds will go in SDLT. Therefore, they are likely to drop the percentage of the price they are prepared to lend – meaning buyers have to put the cash they would have spent on SDLT towards buying the property.

The likely result of any changes is that property prices would rise and, as SDLT is based on property prices, the one person who would win is the chancellor.

The real answer for first-time buyers does not lie in SDLT, but in ensuring that there is sufficient entry-level property for them to buy – whether that is achieved by changing planning rules, changing how developers are taxed or something else.

Leigh Sayliss is partner and head of business and property taxes at Howard Kennedy.