People who have put off buying or moving home will find those decisions easier, but there is still a dark cloud threatening to rain on the parade.

With a Budget looming in a few weeks’ time on 11 March, it’s time to revisit that old chestnut, stamp duty.

I’m never quite sure why it is officially referred to as Stamp Duty Land Tax (SDLT) as it is not a tax on the value of land.

It is a transaction tax, pure and simple. And at the current rates, it is strangling the market.

If you tax apples, people will buy and sell fewer apples. If you tax property transactions, guess what: fewer people will buy or move home.

And if there are fewer transactions, the market does not clear.

As people’s circumstances change, they have more children, the children leave home, an elderly relative comes to live with them, so their housing needs change.

If you make it more difficult or significantly more expensive to move, they are more likely to stay put in housing that it is no longer right for them – but which might be perfect for someone else.

Falling revenues

Ironically, stamp duty revenues have also fallen. Boris Johnson knows all about cake – having it and eating it.

He should understand that a smaller slice of a bigger cake is often better than the other way round – and so it is with stamp duty.

During his successful Conservative leadership bid last summer, Boris Johnson talked about abolishing stamp duty on purchases under £500,000 and cutting the rates on higher-value properties as well.

A lot of people who are thinking about moving house soon will be watching anxiously to see what chancellor Sajid Javid does with stamp duty on 11 March, he should not let those people down.

His first Budget could be remembered as the one that takes an axe to penal levels of stamp duty and sets the property market free.

In a debate about the UK’s growth strategy on Tuesday in Westminster Hall, John Redwood (pictured), Conservative MP for Wokingham, said not having stamp duty rates set at the right level may end up costing the Treasury money because it was stopping people from moving house.

He added that lowering taxes would also help the government achieve its economic aim of promoting prosperity.

The government should look at the issue “very carefully”, said Redwood, because the property market had been damaged by high stamp duties.

He added: “I do not think that the government is even maximising the revenues from stamp duties, and it might not be a bad idea for them to ask: “What are the rates that would maximise the revenues?”

“At the higher price levels in property, transactions have been very badly affected; indeed, they have been massively reduced by the very high rates at the top end of the market. So, the Treasury constantly has to revise down its forecasts of how much revenue it collects from stamp duty.”

Between 2009 and 2015 the deficit was reduced, said Redwood, mainly through a series of tax rate rises and the collection of tax revenue out of the UK’s modest economic growth rather than cuts in public spending. He said these rises had turned the UK into a relatively higher tax economy than it has been in the past.

If people had not been put off moving by high stamp duty rates it would allow people to trade up or down to a property that suited their needs, he added. Moving house also generates income for people who work in the refurbishment and removals business, he said.

Redwood added: “So my number one message to the government is not to underestimate the damage that clumsy taxes can do, and they may even end up costing the Treasury, as stamp duty has done, because it is not collecting as much as it should.”

Previous prime minister Theresa May had already announced plans for a surcharge and in Budget 2018 this was proposed to be just one per cent.

According to reports, the increased surcharge would apply to non-UK tax residents, whether individuals or companies, and include expats moving back to the UK.

It would also be charged on top of any other stamp duty levies, including the three per cent second home surcharge that is already in place.

It is estimated the higher charge would affect about 70,000 transactions each year and raise around £120m, which would be used to help reduce rough sleeping and homelessness.

Election promises

The Conservatives have yet to set out their full manifesto, but yesterday promised to introduce ‘lifetime’ fixed rate mortgages and discounts for first-time buyers.

Meanwhile, Labour launched its manifesto yesterday. This included reforming the Help to Buy scheme so that it focuses on first-time buyers.

And it also announced plans for tougher regulations on bad landlords and a major social house building programme.

HMRC’s Annual Stamp Taxes Statistics also showed that residential SDLT revenue decreased to £8.37bn, attributed to first-time buyers’ relief, devolution of SDLT to Wales and a fall in transactions for properties worth over £1m, which dropped eight per cent since last year. 

Over the year there was a £715m or six per cent decrease in SDLT receipts in England to £1.18bn while Northern Ireland saw a £5m or six per cent decrease to £80m.

On a regional basis London accounted for the most SDLT revenue, amounting to £4.46bn or 38 per cent of total SDLT receipts.

Residential properties where the value was less than £250,000 accounted for nine per cent of residential property receipts and 58 per cent of residential transactions.

There were 231,000 additional dwellings transactions in 2018-19, a decrease of nine per cent from 2017-18. However, if devolution of SDLT to Wales is to be taken into account, the decrease sits at three per cent.

Additional dwellings transactions accounted for 22 per cent of all residential transactions.

Some 218,900 transactions benefited from first time buyers’ relief (FTBR) in 2018-19. The total amount of SDLT relieved due to FTBR in 2018-19 was estimated at £521m while London and the South East accounted for 49 per cent of that, worth £256m.

Some 19 per cent of all FTBR transactions were in the South East while London and the East of England both accounted for 13 per cent.

The weak link

Andrew Southern, chairman of property developer Southern Grove, said: “Stamp duty is the weak link that will continue to bind the market’s progress and only last month was blamed for a monumental retreat in the number of cash buyers.

“A healthy nine per cent rise in receipts in England a year ago has been replaced by a six per cent decline and, while you can be sure no one will shed a tear for the chancellor, it is what this means for ordinary people that matters.

“They want to move, feel they have the capital to move but can’t get their head around the absolutely vicious sting in the tail that means someone purchasing a £500,000 home pays £15,000 just for the privilege of doing so.”

Laura Suter, personal finance analyst at investment platform AJ Bell, added: “The stamp duty surcharge for those buying an additional property has clearly put people off buying, with some landlords choosing to leave the market altogether.

“Boris Johnson and new chancellor Sajid Javid have already set their sights on reforming stamp duty to shake-up the property market, with Boris pledging to scrap it on all homes worth £500,000 or less during his prime minister campaign.

“Whether this gets lost in the Brexit quagmire remains to be seen, but the falling tax take and sluggish property market could propel it up the government’s agenda.”

The stats show that around 3.4 million young adults live with their parents, which marks a rise of 24 per cent on 10 years ago.

And while there could be a wide number of reasons for this surge in the number of people in their 20s and early 30s staying at home – including the fact that people are settling down later and having kids older – there is no doubt that the rise in house prices and rent is a factor.

In the past 10 years, the average house price has risen almost 60 per cent from £149,000 in 2009 to £238,000, while over the same period average rents have increased 26 per cent from £153 per week to £193.

The UK is facing a real crisis at the moment.

Clearly, there are not enough homes – not helped by the fact that there are more people living alone that ever before – and the ones that are available are often unaffordable to the young people looking to buy their own home.

This is exacerbated further by the fact that the stock of smaller homes is falling rapidly, with the latest statistics revealing that just nine per cent of new homes for sale are two-bedroom homes, compared to 17 per cent 20 years ago.

What is the answer?

Well, the problem with affordability is more down to the upfront costs than the ongoing costs.

Mortgage rates are low, so most people – once they have secured a mortgage – can generally afford to pay it, evidenced by the fact that arrears and repossessions are still at historic lows.

The main problem therefore is the rising cost of deposits and stamp duty.

Ultimately, if we want more people to be able to afford their own home, we need the government to reduce or change stamp duty, the first-time buyer incentive has worked and deposits are being increasingly helped thanks to the bank of mum and dad.

So, the quick fix would have to be lenders willing to offer bigger loan to values (LTVs), but we do not want to find ourselves back in dangerous 100 per cent and 110 per cent mortgage territory with Brexit around the corner.

The only thing that could happen now and have an immediate impact is an overhaul of stamp duty. We know that freezing it for first-time buyers has worked, so isn’t it time to scrap it for everyone?

This week’s contribution comes from Cornerstone Tax, for its response to the article: FOS fine highlights brokers at risk from advice ‘drift’ ‒ analysis.

It said: “The decision by the Ombudsman may seem harsh, but the whole case reflects how little is understood by most professionals in the property market about Stamp Duty Land Tax (SDLT) as a whole.

“Consider that the solicitor consulted by the broker was incorrect on the matter, the further fact that the clients apparently didn’t realise that this was a tax they would require actual advice on and the fact that their own solicitor either didn’t advise them or didn’t draw sufficient attention to the fact that of the actual amount they had determined was due.

“The only way to ensure that clients are paying the correct amount is for them to consult an actual tax adviser, who will be able to advise of any exemptions, reliefs or additional charges which may be due, and upon whose advice the client can rely on this matter.

“Until awareness is properly raised among the public about the nature of SDLT, the fact that it is a tax, accessible like any other and for which they hold ultimate personal liability, then mistakes of this nature will keep being made.”

In that sense, there have been some potentially good news stories dangled around to suggest Johnson may be looking to make some quick changes.

Or in the case of introducing rent controls to the private rented sector (PRS), we would hope, consigning these suggestions into the dustbin.

Again, Johnson when he was Mayor of London seemed like he was not interested in over-regulating the PRS; indeed he went on record to suggest that more PRS properties were needed and that investors needed to be encouraged to build and provide supply to the market.

That’s clearly good news, and I have the impression that – with perhaps bigger fish to fry – Johnson might be more than comfortable in leaving other, already heavily-regulated sectors, as they are.

Key area changes

However, it looks likely that in some key areas – notably stamp duty – we will get changes.

What we do know is that the new prime minister seems keen to use stamp duty as an incentive-based tax, with suggestions that all those purchasing homes under £500,000 would not have to pay it, and those paying the top threshold will see that drop from 12 per cent to seven per cent.

When might that happen? Well, it is likely to be at the next Budget, but how early could that be? Pre-October 31?

We shall have to wait and see, but what we perhaps don’t want is a market stalled even further by those who might feel they should wait to buy or put their house on the market, because of the belief that stamp duty change is coming.

In that sense, we need action – or clarity around whether change is happening or not – sooner rather than later.

Cut additional rate

Of course, what would give a real boost to purchase activity would be a focus not just on residential property stamp duty, but also the additional three per cent tax paid by landlords.

It may be wishful thinking to believe there could be a change here, but while there is a greater degree of focus on stamp duty, we should perhaps be making the case for change and the boost to purchase activity this would provide.

Overall, as we have been for a number of years, we find ourselves as a country and a market in a place of uncertainty.

I wish I could say that certainty is likely to be with us shortly, but one suspects that the issues any new prime minister has to solve are much more long-term in nature.

And we as stakeholders and practitioners will continue to have to do the best we can with the circumstances and situation we currently have.

He made the statement after an interview in The Times which claimed he was supporting such a move.

The policy has been touted by trade body the Association of Accounting Technicians (AAT) as a way to help encourage people to move.

In July the AAT said the now Prime Minister Boris Johnson was interested in pursuing the idea after it had been in contact with the then prime ministerial candidate.

However, Javid, who Johnson appointed as Chancellor on becoming Prime Minister, has now rejected the idea outright.

In a tweet on Sunday, Javid said: “To be clear, I never said to @thetimes I was planning to put it on sellers, and I wouldn’t support that.”

He added that bold measures were needed on housing, “but this isn’t one of them”.

In the Times interview, when asked about the policy, Javid said he was a “low tax guy” and wanted to see simpler taxes, but did not outright endorse the mooted stamp duty change.

More speculation about stamp duty this morning. To be clear, I never said to @thetimes I was planning to put it on sellers, and I wouldn’t support that. I know from @mhclg that we need bold measures on housing – but this isn’t one of them. https://t.co/9OVk3XiqMd

— Sajid Javid (@sajidjavid) August 18, 2019

Brokers not swayed

The AAT published the report ‘Time for Change: Alternatives to tax rises’ in September 2018 outlining some details of its proposals.

Mortgage brokers gave the possibility a tepid response. While there are some potential benefits to the policy, there are also significant risks.

The AAT believes that the change would increase the amount of house purchases by reducing immediate upfront costs for all home buyers except down sizers, which in turn should free up smaller properties for first-time buyers.

But, sellers could add the cost onto the asking price of the property, or sales could be deterred if sellers were unable to command the asking prices that they needed.

Phil Hall, head of public affairs and public policy at the AAT said: “We do not believe that switching stamp duty liability is a panacea, but it would be considerably fairer, simpler, more effective and cheaper than the current stamp duty regime.”

Johnson, who is favourite to become prime minister when Conservative Party members choose between him and Jeremy Hunt later this month, has already proposed an overhaul of stamp duty in a no-deal Brexit scenario.

This would include abolishing the tax for all homes under £500,000 and cutting the higher rate threshold back to seven per cent from 12 per cent.

Now the AAT has revealed it has been in discussions with Johnson about its recommendation to make property sellers pay stamp duty, rather than buyers, which was initially made last year.

An AAT spokesman told Mortgage Solutions that the organisation had met Johnson about the proposal following his previous announcement and had since followed-up with him and his team.

Mortgage Solutions has contacted Johnson’s team about the subject but has not yet received a reply.

No surcharge changes

The AAT’s proposal would only apply to primary residences, with no changes made to the existing regime for additional residential properties.

Sellers would pay the stamp duty on all properties but on second homes and buy-to-let properties the surcharge for buyers would continue as at present.

Similarly, the additional charge for overseas property investors would remain in place and be payable by buyers, not sellers.

AAT head of public policy and public affairs Phil Hall said the AAT was pleased that Johnson had agreed to look at its long-standing proposal to switch stamp duty liability from the buyer to the seller.

“This will save the taxpayer £700m a year by rendering First Time Buyers Relief redundant,” he said.

“It will also protect the £9bn of revenue stamp duty it generates as it will still be paid in full, simply by different people.

“It is also much more progressive as it will be paid on the lower priced property being sold rather than the higher priced property being bought.”

Benefits and risks

The body believes that the change would increase the amount of house purchases by reducing immediate upfront costs for all home buyers except down sizers, which in turn should free up smaller properties for first-time buyers.

It noted that the majority of down sizers will have little or no mortgage to pay and will have significant equity and were therefore best placed among all homeowner types to pay a little extra, especially compared to first-time buyers.

Risks highlighted included that sellers may simply add the cost onto the asking price of the property.

Other uintended consequences include some downward price pressure on sellers, as the higher the asking price, the greater the amount of stamp duty they will have to pay – and the less likely they are to sell their house.

HM Revenue & Customs’ Stamp Duty Land Tax (SDLT) take  – the land tax that must be paid by homebuyers, with the exception of most first-time buyers, when purchasing property costing over £125,000 – was £2.66bn in Q1 this year, down four per cent from £2.78bn in Q1 2018.

However, the figures are not directly comparable, as Q1 2019 only accounts for England and Northern Ireland after SDLT for Wales devolved at the beginning of Q2 2018.

The total was also 19 per cent lower than in Q4 2018, although the first quarter of the year is typically lower than the end of the year preceeding.

Transactions decreased by 20 per cent from 316,200 in Q4 2018 to 253,900 in Q1 2019, mirrors a 20 per cent fall over the same period last year, with similar falls occurring over the same period for several years.

Revenue from additional dwellings SDLT, typically paid for second homes or on buy-to-let purchases continued to fall for the fifth consecutive quarter.

The total raised was down to £811m, a fall of £54m or around 6 per cent, on Q1 2018. Transactions in this category also fell 4,100, about 7 per cent, to 51,000.

Overall falls

Most of the overall decrease in Q1 2019 is due to residential transactions, which fell to 225,500 in the first quarter. In the previous year there was also a 21 per cent fall compared to the previous three months. Residential receipts in Q1 2019 fell by 26 per cent.

Non-residential transactions – for which the stamp duty tax threshold is £150,000 – fell by six per cent to 28,500 this quarter. There was a similar six per cent fall for the previous year. Non-residential receipts fell by three per cent in Q1 2019.

The number of transactions which involved borrowers claiming first-time buyer’s relief was 46,800, making a total of 288,300 claims since the relief’s introduction. The estimated total amount relieved is £680m.