Reform is needed otherwise the impact of a reduction in stamp duty receipts will adversely affect Government coffers.
Tony Ward is chief executive of Clayton Euro Risk
I’ve talked about my feelings on stamp duty before. In fact just two weeks ago I wrote that many house builders – particularly those operating in the prestigious boroughs of central London – felt that stamp duty hikes were ‘devastating’ the higher end of the market.
Further data from Knight Frank last week supports this view. The information showed that the increase in stamp duty for properties over £1.1m has hit transactions hard, particularly in the most expensive London boroughs.
The number of homes sold in Kensington and Chelsea was down 12% in the year to 31 March, following an 11% decline in 2015. Knight Frank believes lower levels of transactions will have a knock-on effect on the Treasury’s take from stamp duty: 11% of receipts from England and Wales are from Westminster, Kensington and Chelsea alone, in which the stamp duty average bill last year was almost £110,000. In 2015, London contributed 44.6% of all stamp-duty receipts while accounting for 12.3% of transactions. The reliance is increasing, while the number of homes sold in these areas is falling.
Interesting but hardly surprising. This week, annual stamp duty receipts are expected to show a drop after a slump in the number of property transactions. The Government will release its receipts for the 12 months to the end of March, which will reveal the full effects of changes to stamp duty made by then chancellor George Osborne in December 2014, when the levy was raised on properties worth more than £1.1m.
It will register the initial impact of the 3% tax rise in April for buy-to-let investors and second-home buyers. Provisional figures suggest that returns could be down by 2%; this might have been lower were it not for the impact of the surge in buy-to-let investors at the start of this year. In March alone, the number of properties sold was 91% higher than the same period in 2015. Lucian Cook, head of residential research at Savills, said: “There will be a lot of attention on whether the tax taken in at high-value markets has fallen because the increased rate of stamp duty has been offset by a fall in transaction levels.”
Trouble abounds.
I have suggested that there could be a more effective way for Government to raise monies – perhaps replacing the tax with a fairer system that might be a flat-rate paid by both buyer and seller.
I was pleased therefore to see that Yorkshire Building Society has now waded into the fray and suggested a change to the system. While not going quite as far as my alternative, YBS says that stamp duty should be paid by the seller of the home rather than the buyer to give a boost to those trying to get onto the property ladder. While this move is more targeted at first-time buyers, the aim is to aid the housing market. YBS believes that the reform would increase the number of transactions by 16,000 in the first year, including 6,000 homes bought by first-time buyers. This is based on expectations of a 2% increase in transactions after the overhaul. YBS suggests that the Government would benefit from the change, thanks to the increase in transactions taking place each year. A 2% increase in transactions would generate an additional £156m, the building society said.
The great stamp duty debate is set to rumble on but maybe officials will now take heed. Reform is needed otherwise the impact of a reduction in stamp duty receipts will adversely affect Government coffers as well as house builders, estate agents and house buyers.
