Lenders’ organisation in UK wants stamp duty reformed in 2017
Looking ahead to 2017 the Council of Mortgage Lenders believes that stamp duty needs to be reformed as it is one of the biggest barriers to home ownership.
The CML, which represents over 90% of home lenders in the UK, says that the property tax paid by buyers, which rises with the price, is preventing people from moving as it is one of the biggest upfront expenses when buying a home.
It can make the difference for first time buyers and home movers and the scale of the upfront charge can make the difference between prospective buyers going ahead with their purchase, or staying put.
In a new analysis the CML points out that stamp duty is a transaction tax and so relies on people moving homes to produce revenue. But in recent years people have either decided not to move or to build an extension instead and as a result revenues from the tax have been falling.
‘Successive Budgets and autumn statements have revised down forecasts for stamp duty receipts because property transactions have been subdued. More recently, the downward revisions have been due not only to lower overall activity, but also to a stamp duty reform introduced in December 2014. This increased the tax bill for more expensive properties and has materially slowed down activity at the top end of the market, leading to a fall in the average value of transactions,’ the report points out.
The reform also changed the structure of stamp duty, moving it from a slab system to a marginal one. But this has been criticised as only a slight improvement on what existed before, as the typical saving made on stamp duty was very modest.
The report gives an idea of how tax revenues have fallen. In December 2014 stamp duty was predicted to bring in £19.5 billion a year in revenue by 2019/2020, more than double the revenue at the time the forecast was made.
However, in its latest set of forecasts, published in November 2016, the Office for Budget Responsibility (OBR) now expects £14.3 billion in revenue in 2019/2020. Cumulatively, the downward revision in receipts over the five year period from 2015/2016 to 2019/2020 comes to just over £19 billion.
But this is despite a new 3% stamp duty surcharge on second homes introduced in April 2016 which has helped boost stamp duty receipts by 75% more than was originally expected.
The report also points out that fiscal drag has also managed to widen the tax base for stamp duty substantially. The thresholds have remained pretty much unchanged since March 2005, with the exception of a temporary respite during the financial crisis. ‘Unchanged thresholds, coupled with rising house prices, mean more transactions are subject to tax, and to progressively higher rates of tax, as they cross over the stationary thresholds,’ the report says.
‘This is put into sharp relief by looking back to 2005, a time when most first time buyers could expect to pay no stamp duty at all. Fast forward to today and nearly three quarters of first time buyers pay stamp duty,’ it adds.
The analysis also explains that the consequences of lower activity levels in the housing market affect more than just the amount of revenue for the government. A low number of transactions reinforces inefficient use of housing stock. Young people find it harder to buy their first home, those in the middle struggle to trade up and elderly people find it harder to move to homes more suited to their needs, or to unlock their housing wealth.
‘It is clear that the modest reform in stamp duty in 2014 did not have a big impact. It effectively smoothed out pinch points in the old system but provided buyers with only a small saving. There were also unintended consequences, focused largely at the top end of the market,’ the report adds.