Waking up to the news that the stamp duty holiday is likely to be extended in next week’s budget was not surprising, but will it solve anything and surely a longer term solution should be sought?
Many industry commentators have rightly questioned the impact of a simple three month extension and argued that a potential tapering might be more feasible to avoid a massive drop in activity once the deadline has passed. Others have flagged that it is simply a kicking of the can down the road and conveyancers will face ongoing pressures to complete sales, despite lockdown still causing delays with local searches amongst other things.
It is also estimated that this extension could cost the government around £1bn.
I think most would agree that a feast and famine type policy is not good for sustained economic growth in the housing market and for the general confidence of consumers. This mini boom has undoubtedly delivered record numbers to many businesses in the house buying process, but some form of stability is needed. Few would argue that the long term health of the housing market is fundamental to the UK economy and its recovery.
If property sale transactions die down this invariably means less receipts for HMRC. The revenue only feeds the tax receipts of SDLT if the market is buoyant. Given that we are facing a period of economic uncertainty, it is important the government looks at the bigger picture of economic growth which invariably will generate greater tax receipts over a sustainable longer term.
In my view, stamp duty is a blunt money-raising tool for the government and is ripe for reform, as it doesn’t help those who most need support. For example, first time buyers and any that need a deposit to purchase rather than using equity are unable to borrow against the SDLT charge meaning that extra funds are needed to cover the tax. The thresholds where the tax starts and then increases is only useful in certain geographic areas and is not universally helpful and so creates an unlevel playing field.
Therefore, I propose that we scrap SDLT entirely and look to replace with some form of residential property sales tax, akin to Capital Gains Tax, where the seller pays a percentage from the equity they have built.
This promotes people downsizing as well as upsizing and means that buyers putting down a larger deposit will be able to potentially secure lower mortgage interest rates, making long term affordability achievable.
Keeping the housing market fluid helps promote economic growth and generates stimulus and greater tax receipts through VAT, corporation tax, employment etc. A rethink will help to create a pebble in a pond ripple effect where the benefits are felt beyond just the tax break and give the UK a much needed stable platform from which to grow.