"In recent years however, the Government has been able to kick back any criticism because the tax-take has continued to rise."
Firstly, let me acknowledge that there is, and perhaps always has been, a significant difference in opinion on the ‘value’ (or otherwise) of stamp duty land tax. There’s been no doubting that in the ‘boom’ housing years and indeed as prices have continued to inch upwards, it has been a formidable cash cow for the Government of the day whilst at the same time being a major bug-bear for those trying to understand it, and of course those actually paying it.
On the former point just recently, for example, L&C Mortgages suggested that 31% of first-time buyers were unsure about the stamp duty changes that had been brought in last year and were unclear about whether they would have any benefit for them. These, of course, were the changes purely designed to save first-time buyers money – they pay no such tax on properties valued under £300k. It’s therefore somewhat surprising that the very group this change was supposed to benefit are not particularly au fait with the way it does.
Why might this be? Well, despite some attempts at simplification of stamp duty, the constant chopping and changing by successive Chancellors in recent times, really does the Government – or those affected – no favours. In the past few years we have had the stamp duty holidays, moves from a slab to a threshold system, an increase of 3% for those buying ‘additional properties’, and judging by recent reports there are now considerations being made that this latter group will be hit by further hikes in the November Budget.
To say stamp duty has been used as a political football would be an understatement. In recent years however, the Government has been able to kick back any criticism because the tax-take has continued to rise. Well, recent figures suggest it is no longer in such a position. In Q2 this year, stamp duty brought in £1.987 billion; in the third quarter of Q3 2015, stamp duty brought in £1.999 billion. That was before George Osborne introduced his surcharge on those, particularly private landlords, buying additional properties.
In between those dates, it must be said that stamp duty take did increase, but over the last few quarters that trend has reversed. Much of the blame could be put at the Government’s door because there seems to be no doubting that it’s tinkering and the fact it also increased stamp duty for those buying properties over £1m, has had a severe impact on the number of transactions. As these have continued to fall, because the cost of purchasing has risen, so has the money from stamp duty coming into the Treasury coffers.
London, in particular, has been impacted by the stamp duty changes and we’ve seen a major drop-off in purchasing by buy-to-let landlords. The latter gap was supposed to be filled by first-time buyers but this hasn’t happened in anything like the numbers anticipated because of reasons completely unrelated to stamp duty – for example, the difficulty in raising a deposit, the lack of supply for new homes, the cost of houses, and the increased difficulty for first-timers in getting a mortgage.
It would appear that those within the Treasury who anticipated hitting landlords hard with a stamp duty hike, would ultimately mean more first-time buyers purchasing a home, got the market very wrong. Indeed, if the Treasury also thought that raising stamp duty would mean more money for them, then they also got that wrong too. In fact, many commentators believe the opposite to be true, and that it’s through lower stamp duty levels that you encourage housing transactions, and that you’re likely to raise more money because of this.
And with the rumours around increasing the levels for additional properties, it would appear the Government has either not learnt from this, or it is deaf to the industry which (in my view) is suggesting a much better approach. There’s no doubting that this Government wants to get more new, younger purchases on the property ladder, but there are far more issues at play here than simply battering landlords/additional property owners and expecting first-timers to suddenly overcome the issues they have. Indeed, while the tax saving for first-timers would be welcome, research has shown that the benefit is minimal and it only truly benefits those that were going to buy anyway, and doesn’t incentivise those that couldn’t in the first place.
Stamp duty will remain a political tool to be utilised at will, but let’s hope that those in power realise how blunt it truly is, and that the best course of action for the housing market’s health in general would be to cut, rather than increase, right across the board. At the same time, the true underlying issue impacting on first-time buyers – namely getting a deposit together – will not be changed at all by making landlords pay more. In this case, the numbers do not lie.