Changes to Stamp Duty in 2014 upped the tax burden on luxury house-buyers. But for foreign buyers, the collapse in sterling since the Brexit referendum means that the tax hike has been effectively wiped out on a million pound house and greatly reduced above that.
This should have led to a buying spree. Yet this – and a raft of other tax measures – means UK property is clearly less attractive than it used to be. Indeed, so few foreign investors have been enticed back to the UK property market that 2014 sales levels have not been regained.
Yet stamp duty remains an issue for many domestic buyers – a cut in its level could be just the shot in the arm the housing market needs.
The change in the stamp duty regime was motivated by the desire to fix a policy mistake. It was aimed at cleaning up the distorted price structure of the housing market created by the so-called ‘slab’ structure of the old system. Unfortunately, rather than simply fix one problem the Treasury’s desire to maintain tax revenues created another. The new rates were chosen to cut the cost of stamp duty on most transactions but claw back revenue on more expensive property.
However these changes immediately sparked off a decline in the number of sales of prime residential property! The problem was exacerbated by a further 3% surcharge on anyone buying a second home whether their original property was owned in the UK or abroad. In the year to Q2 2019, transactions of property worth over £2m were down 17% on the same period in 2013-14.
Other factors are at play. Aside from higher costs at the top of the market, a weaker economy and crippling uncertainty is holding back UK homeowners from moving, stymieing transaction numbers at all price levels. A shallow pool of homes to buy makes it harder for movers to find the right property – locking families into the wrong houses in the wrong places. With fewer rungs the housing ladder becomes harder to climb.
Indeed, housing transactions have yet to recover from the crisis and are still a third lower in 2018 than in 2006. Moreover, 80% of property bought in 2006 cost less than £250,000 and was only subject to stamp duty of 1% or less. In 2018-19, even after attempts to make the tax fairer, just 63% of transactions fit this description.
Despite the best intentions of recent policy changes, stamp duty remains a terrible tax. While in the long-term a plan to abolish it altogether would be commendable, in the short-term its revenue would be missed. With the housing market in need of a boost and a chancellor who has signalled a willingness to loosen the purse strings a move to cut stamp duty rates across the board could still prove decisive.
Contact: Alastair Neame email@example.com 0207 324 2878