Latest figures from HMRC show it collected an extra £4.2bn in stamp duty tax in the year to April 2022, compared to the year previously, up at £10bn.
Lo and behold, it’s something of a no-brainer to acknowledge that when transaction numbers are high, the government and Treasury is going to do far better when it comes to stamp duty tax-take, than what we appear to be going through right now – dampened demand and activity due to a variety of factors.
However, what is also clear, is that despite us now being back in a stamp duty ‘holiday’ period for at least the next couple of years, the thresholds have not been increased with house price inflation, thus dragging more people into paying higher amounts of tax at lower purchase price points.
Prices might be seeing some monthly falls now, and there is an anticipation that 2023 will be a year of annual price drops – at least for the ‘average’ property if that really exists – but it should not be forgotten that prior to this we had witnessed double-digit price growth over the course of the previous two years.
Still reaping stamp duty rewards
Now this might lead those within the Treasury to think that they might be able to secure more in the way of stamp duty receipts by keeping the thresholds the same, the problem is however there are numerous forces weighing down on activity.
While increased receipts would result from maintaining the transaction levels of the last couple of years, we’ve already seen a dip from the period covered by the HMRC figures, and my expectation is that by the time we get to the end of April 2023, stamp duty receipts will be down on the previous 12-month period.
Certainly, in the period post-mini Budget we saw a significant number of potential transactions fall through because borrowers’ mortgage plans were either severely curtailed or, in many cases, halted completely.
We have a Budget next month, and from my perspective, I’d like to see the government focused on how it can get the housing market moving again, particularly when it comes to purchase transactions.
Reviving demand
There is no point having a stamp duty system which doesn’t keep up with house price inflation, in the expectation of bringing in more tax, if it merely contributes to dampened demand and the tax take actually dropping.
A number of economists are suggesting that transactions numbers will drop significantly below one million this year. While it’s very early days in the year, you would not bet against this.
At the moment first-timers only pay stamp duty above £425,000, and I would suggest there is a very strong argument for raising the threshold for all purchasers to this level, plus moving the other existing thresholds in line with at least inflation.
As a more ‘radical’ option, the government could also look again at stamp duty in its entirety – there are plenty who believe the economic benefits of removing it completely far outweigh the tax it drums up.
Or the government could look again at the extra three per cent stamp duty charge for landlords, because there’s no doubting that the private rental sector needs a real injection of supply in order to meet the needs of tenants. Either cutting this extra charge or, dare I say it, returning it to parity with the rest of the system would likely see activity levels upped.
Current stamp duty break having little impact
Indeed, as we have seen with previous holidays, they can act as a significant catalyst for activity, and therefore a more permanent move and a change in thresholds may also boost demand.
At the time of the mini Budget there was a lot of noise about the stamp duty changes Kwasi Kwarteng announced – suggesting they were just likely to over-egg the demand pudding. Little did we know, how the rest of that Budget, would actually have the opposite effect.
It now seems clear that a little purchase demand stimulation would not be a bad thing, especially working in tandem with increased mortgage product choice and (hopefully) greater downward pressure on mortgage prices and a clearer path through affordability obstacles for borrowers.
Taking more people out of the stamp duty tax burden may well end up delivering more in tax take for the Treasury simply because we (and they) need an active housing market to generate the levels of business and activity we all want. Bumping along the bottom in terms of transactions is no good for anyone – let’s create an environment where many more people feel able to move forward. Literally.
