Monday, August 13, 2018

IS SDLT REALLY THAT BAD?

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IS SDLT REALLY THAT BAD?


I have written about SDLT before but make no apologies for returning to this subject.  Three things crossed my desk recently.  The first was an article by Tim Worstall of the Adam Smith Institute entitled “An illiquid housing market is holding Britain back”.  This first discusses how housing relates to labour mobility but then goes on to say, “But there’s a much more important factor weighing on the British housing market – the huge hikes in stamp duty overseen first by Gordon Brown and then continued under George Osborne … in terms of portions of the market, owner-occupation is much the most important constituting well over 60% of the entire market.  And governments of both stripes have contrived to introduce a significant tax wedge into that liquidity”.  He concludes, “there is a strong case for reducing stamp duty back to what it ought to be, a fee for the State’s services in registering property.  By doing so the Government would go some way to making it easier for people to buy and sell”.

I was struck by that “reducing … back”.  You cannot go back to something that never existed.  SDLT was never intended as a charge for registering property.  It was always conceived as a tax.  Stephen Dowell’s History of Taxation and Taxes in England tells me that Stamp Duty Land Tax started life as a tax on deeds (including conveyances) in 1694 to help fund the war with France.  The tax was increased in the 1750s to help finance the Seven Years War and significantly increased in 1783 to help fund the American War of Independence.  The stamp taxes were consolidated in 1808 and this consolidation included a new ad valorem scale charge on conveyances.  At the time SDLT was introduced in 2003 the stamp duty rates were:
                                                       
Up to £60,000                         nil
£60,001 - £250,000                 1%
£250,000 - £500,000               3%
Over £500,000                        4%.

The tax was based on a slab system, as was SDLT initially, at exactly the same rates!  SDLT on residential property was moved to a slice system in 2014.  A comparison of the change is as follows:

                                                                        cumulative                 old duty

            0 - £125,000                            NIL               -                            £650
            £125,000 - £250,000               2%       £2,500                         £2,500
            £250,000 - £500,000               5%       £17,500                       £15,000.

In other words where the consideration is small, the current rates are actually lower than they have been since March 2000.  It is only when the price of a house exceeds £375,000 that the move from slab to slice increased the tax.

The second thing I noticed was the Land Registry House Price statistics for England for May.  These tell me that in all regions, other than London, average house prices were below that £375,000 figure.  They also tell me that the average prices for types of residence throughout England were:

            Detached                     £370,143
            Semi-detached            £227,310
            Terraced                     £195,982
            Flat/maisonette          £225,465.

So Mr Average is still paying the same tax on his house purchase as was paid by his parents in 2000.  So much for SDLT (or stamp duty as everyone, including the government, tends to call it) weighing on the housing market.

Of course what Mr Worstall is really complaining about is that the SDLT surcharge on second homes and rental properties is making buy-to-let less attractive.  In other words, his concern is not about the 60%; it is about the 40% (and those in the 60% who can afford to buy well above average homes).  There is a dilemma here.  Labour mobility does require the availability of rental properties.  The question is whether 40% of total house stock is the right number for such properties.  There are actually still far greater tax incentives to acquire buy-to-let than to buy your own home.  I could understand Mr Worstall contending that taxation should not distort the property market – as it has done since 1999 when mortgage interest relief was scrapped for owner-occupiers but retained for landlords.  But he does not want to do this.  He wants to restore the situation under which owner-occupiers had to compete with landlords for houses with one hand tied firmly behind their back by the tax system.

The third thing that crossed my desk was an HMRC press release headed “121,500 households benefit from stamp duty cut saving £284million”.  This is the SDLT exemption for first-time buyers on houses costing up to £300,000 and the limitation of the duty to 5% for the next £200,000, a saving of £7,500 on a property costing over £500,000.

The Land Registry statistics say that the average price of a property bought by a first-time buyer in May was £204,140.  The SDLT on such a property before the first-time buyer relief was £3,957 (5% of £79,140).  The average relief for the 121,500 first-time buyers was £2,337.50.  But no relief at all was given to those buying a property for less than £125,000 as no SDLT was payable.  On a £200,000 property the relief was £1,500.  On a £250,000 one it was £2,500.

So is the relief going to those who need it?  That depends on how you define need.  A young couple buying a starter home outside London probably obtains little or no relief.  It is middle-class couples, with their house purchase largely funded by their parents, who are obtaining the benefit.  Why don’t HMRC trumpet the true statistic?  “A tiny number of middle-class couples share £284 million government handout”?

ROBERT MAAS

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