Last week, the Scottish parliament passed a bill replacing Stamp Duty’s ‘slab’ structure with a progressive tax. With a few exceptions, all buyers of houses worth less than £2m will be better off.
So, is it time for Westminster to offer a similar reform to homebuyers in the rest of the UK?
For this week’s Marketwatch, our commentators are:
Countrywide financial services director Nigel Stockton, who calls on the government to remove Stamp Duty for transactions under £250,000
Council of Mortgage Lenders head of member and external relations Sue Anderson, who suggests the Treasury is in no hurry to reform a profitable tax
HomeOwners Alliance chief executive Paula Higgins, who thinks it should be up to sellers rather than buyers to pay
Nigel Stockton, director, Countrywide Financial Services
As the UK’s leading residential property services group and the UK’s largest mortgage broker, we see first-hand the issues facing property buyers and one key issue is the Stamp Duty Land Tax system, which we believe in its current format is prohibitive to promoting growth in the housing market.
The tax take from Stamp Duty, over £4bn per annum, is well over the annual allocation from the Homes and Communities Agency to build affordable housing. According to figures from the CML, 87% of Stamp Duty comes from properties worth more than £250,000. Removing Stamp Duty for properties worth under £250,000 would have a small impact of tax receipts, but could significantly reduce costs to purchase a property, particularly when higher deposits are currently required to obtain a mortgage.
The cost of Stamp Duty is a barrier to first-time buyers, who typically purchase properties sub-£250,000 and it distorts the market around this price range. It is good to see lenders such as Halifax develop mortgage products that offer to pay Stamp Duty and help first-time buyers to get on the housing ladder, but the government needs to develop a more innovative and fairer solution to Stamp Duty Land Tax by reviewing both the thresholds and the current ‘slab’ mechanism.
Sue Anderson, head of member and external relations, Council of Mortgage Lenders
Good for Scotland. At the CML, we have long advocated reform of residential Stamp Duty, away from its current ‘slab’ structure to a marginal rate system. It would reduce disincentives to buy and sell property, provide a more stable tax base over time, and remove current distortions around Stamp Duty thresholds.
But a key consideration for government is whether it can be done without sacrificing revenue. When we looked at this issue last year, we concluded that moving away from the slab structure would either result in a significant loss of revenue to the public purse, or significant losers among different groups of property buyers.
We therefore concluded that, at a UK level, stamp duty reform was likely to remain on the side lines, despite its merits.
But it is a bit odd to think that, come next spring, Help to Buy mortgage guarantees will come into play to improve the lot of those wanting mortgages up to 95% LTV. Yet, at the same time, the government will be happy to relieve those same buyers of a tidy sum – up to £24,000.
There is a sense of policy paradox here. But it’s a conundrum that we doubt will be solved south of the border, at least for as long as reform would harm the Treasury’s coffers.
Paula Higgins, chief executive, HomeOwners Alliance
The way Stamp Duty is structured is insane at a time when the government claims helping people buy their own home is a priority. It is the UK’s fastest rising tax. Since 1995 the average amount of Stamp Duty paid has risen by 6.5 times more than average earnings and 4.6 times more than average house prices.
Scotland has already acted by turning Stamp Duty into a progressive tax and by setting the thresholds so the average Scottish homebuyer does not have to pay.
But how about letting the seller pay and not the buyer?
This would immediately take first-time buyers out of the equation because they have nothing to sell. The vendor would most likely add the cost of the Stamp Duty to the price of the house and the buyer could add a few thousand on to the mortgage to spread the cost.
Of course, sellers might argue that they have already paid Stamp Duty when they bought – why should they pay twice? True enough, but they won’t be paying duty on the next place they buy up the chain, so it evens itself out.
Thresholds should be raised annually in line with house prices to stop the absurd situation where ordinary people are captured by higher and higher bands. The majority of homebuyers who pay stamp duty pay 3%, not 1%.