The Spring Budget is the final opportunity for the government to lay out its plans before the next general election, which is rumoured to be held in November.
Despite admitting to less headroom than previously thought to make tax cuts, Chancellor Jeremy Hunt still has options to make changes to the dreaded Stamp Duty.
Homeowners pay Stamp Duty Land Tax (SDLT) when they buy houses, flats and other land and buildings over a certain price in the UK.
Experts have argued that one tax cut that the Chancellor should make in next month’s Budget is to SDLT on house purchases.
As house prices and mortgage rates at high levels, homeowners are urged for some relief as SDLT continues to add thousands to already pricey home purchases
Personal finance expert, Jeff Prestridge states that if the Tories want a fighting chance of winning the next General Election, the must be bold enough to axe the dreaded tax.
SDLT only applies to properties over £250,000. The rates are as follows:
- Up to £250,000 – Zero
- The next £675,000 (the portion from £250,001 to £925,000) – five percent
- The next £575,000 (the portion from £925,001 to £1.5 million) -10 percent
- The remaining amount (the portion above £1.5 million) – 12 percent
However there is currently an additional three percent charge on each of SDLT rates for additional properties owned.
Therefore, residential properties with a value between £250,001 and £925,000 could be charged eight percent SDLT, the current five percent for a residential property plus the additional three percent per cent levy.
This peaks at 15 percent for properties over £1.5 million.
At present, someone buying an additional property for £290,000 (the average UK house price) to rent out would pay £8,700 more SDLT than someone buying the same property as their main home.
Mr Prestridge told This is Money: “Not only would the scrapping of stamp duty reinvigorate a faltering housing market, encouraging more people to move — either to larger homes or to downsize.
“But it would also give a huge fillip to the UK economy as movers spend money on their new properties, renovating and extending them.
“In addition, it would increase job mobility as onerous stamp duty costs would not stand in the way of people moving from one end of the country to the other in the pursuit of a new job.”
Doing away with stamp duty would also provide a boost to the rental market. Reducing the tax burden on landlords would help alleviate the significant, ongoing shortage of housing stock in the private rented sector, bring down rents, and support growth across the economy.
Research published by Capital Economics (an economic research company) estimates that the move would increase the number of rental properties by 900,000, thereby increasing government revenue through other associated levies by £10 billion.
UCL economist Paul Johnson, who also made the suggestion to scrap stamp duty for additional properties, warned that higher taxes on landlords translates to higher rents, ultimately affecting tenants.
While Treasury officials may baulk at the loss of tax revenue arising from such a move — between £4.5 billion and £9 billion a year depending upon whether abolition is extended to non-primary residence homes — they would be wrong to do so, Mr Prestridg explained.
The revenue lost would be offset in part by a boost in VAT receipts that the resulting spend on home improvements would trigger — running into many millions of pounds a year.
The personal finance expert continued: “Although the axing of stamp duty may appear radical, it wouldn’t be. Far from it. Outside of the Labour Party, stamp duty is reviled by nearly everyone — not just homeowners, but leading academics, economists and financial institutions, too.
Last month, Paul Johnson, director of the influential Institute for Fiscal Studies, described stamp duty on house purchases as “among our worst and most damaging taxes”.
He added: “It gums up the housing market, keeps people who don’t need them in houses that are too big for them, thus reducing the supply available to growing families; and it serves to reduce labour mobility.”
Other economic think-tanks are of the same opinion. Both the Adam Smith Institute and the Centre For Policy Studies have long argued that stamp duty should either be abolished or cut.