Stamp Duty changes

The Times newspaper reported that the government has signaled that it is considering changes to stamp duty, from incentives for first-time buyers to tax relief for downsizers.

Sajid Javid, the chancellor of the exchequer, has said: “I’m a low-tax guy. I want to see simpler taxes.” He has also said that “bold measures” are needed to stimulate the housing market. However, with stamp-duty revenue down by 6 per cent in the past year (12 per cent for homes valued at more than £1 million) and the need to deal with the prospect of a no-deal Brexit, he has little room for manoeuvre.

It looked at the potential options for Javid’s first autumn budget?

  1. Switch liability
    Boris Johnson, the prime minister, has met the Association of Accounting Technicians (AAT) to discuss the idea of sellers, rather than buyers, paying stamp duty. However, the idea has plenty of critics. Lawrence Bowles, a research analyst at Savills, an estate agency, says: “The change would have a limited effect on first-time buyers, who already benefit from stamp-duty relief on purchases under £500,000. It would also discourage empty-nesters from selling their family home to downsize.”

Notwithstanding that the market would quickly adjust — through sellers adding the cost of stamp duty to house prices, but no guarantees that lenders would offer mortgages that cover the additional cost to buyers — the suggestion prompted outcry from homeowners concerned that having paid stamp duty when they bought their property, they would have to pay again when they sell.

  1. Relief for downsizers
    Downsizers account for 7 per cent of residential stamp-duty receipts. However, estate agents report that many are dissuaded from moving by the tax.

Rob Houghton, the chief executive of Reallymoving, a price comparison website, says: “Scrapping stamp duty for downsizers is the simplest and most cost-effective way of freeing up the market, allowing older people to move into more suitable homes and reducing competition for larger homes.

“When a larger house gets sold it enables a chain of transactions, and the lost stamp-duty revenue would be more than recovered by boosted transaction levels across the market, not to mention the release of vast equity by over-65s, which has been locked into property for decades with no benefit to the wider economy.”

  1. Relief for first-time buyers
    Fewer first-time buyers have paid stamp duty since the autumn budget of 2017 in which £300,000 of any first home costing up to £500,000 was tax-free, with 5 per cent charged on the remaining £200,000. Taking the onus of stamp duty away from first-time buyers would bring a welcome bonus at a time when they need it most. For buyers of a first home costing £500,000 it would mean an extra £10,000 in their pockets.

 Cuts for all

  1. During the Conservative Party leadership contest Johnson said that he would consider raising the stamp-duty threshold to £500,000 and reducing the highest rate of tax from 12 per cent to 7 per cent. This means those buying homes over that threshold would also make a saving.

This would mean that those buying property costing more than £500,000 would make a £15,000 saving, so someone buying at £800,000 would see their stamp-duty bill halve, while someone buying at £1.5 million would see it fall by 16 per cent.

  1. Other taxes
    Stamp duty is not the only tax being looked at. Capital gains tax and council tax, which is still based on 1991 house values, are also considered ripe for reform, although few think that Javid will look at overhauling these just yet.

Whatever the chancellor decides to do, caution is urged. Bull says: “Change is long overdue, but it would be far better to open up the issue to public consultation, to explore what form any changes might take and the effect of those changes.”

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Julian Kaye Dip PFS

Financial Adviser