According to the Home Owners Alliance, a consumer group for home owners, said that while the surcharge is welcome in principle, the way it is going to work is not helpful due to a number of situations which have not been taken into account.
In its response to the proposed change due to take effect from 01 April, the HOA says it is so overly complex and flawed that it will lead to massive unintended consequences.
‘It is great the government is trying to use stamp duty to help home owners, but they have made a real hash of it. The ridiculously complex way they are planning to introduce the scheme will end up harming many of the very home owners it is meant to help, and lead to widespread confusion among home buyers,’ said Paula Higgins, HOA chief executive.
‘We are already being contacted by distressed home owners who have worked out they will be caught by it, and not be able to buy the home they want to. Rather than push ahead with a well-intentioned but dangerously flawed scheme, it should go back to the drawing board and put it right,’ she added.
In its consultation response, the HOA has suggested many remedies to iron out some of the worst problems with the proposals, but points out that almost none of the problems would exist if the government used the more simple system.
‘It is really simple, no one should pay the stamp duty surcharge if they are going to buy a home to live in, and home owners need confidence that will be the case. However, if you are buying a residential property for any other purpose, you should pay the surcharge,’ said Higgins.
The HOA consulted widely with members and other stakeholders, and identified various problems. It pointed out that many ordinary buyers who are not buying a holiday home or one to let out will be hit by the 3% stamp duty surcharge at the last minute, forcing them to give up purchasing their new home.
For example, a first time buyer will be charged the stamp duty surcharge if they jointly purchase their home with someone who already owns a property and they could pay more stamp duty than an existing home owner with a major property portfolio.
Separating couples could be hit by the surcharge when one of them sets up a new family home and people moving to new build homes where the timetable is dictated by the developer will generally have to pay the stamp duty surcharge, only to reclaim it from the government later. This will particularly hit hard stretched pensioner downshifters moving into newly built retirement homes, says the document.
Also, home owners who move for work and rent out their homes will have to pay the stamp duty surcharge when they sell their old home to buy a new one in their new area and first time buyers could pay the same stamp duty as a foreign speculative property investor.
People with a cheap buy to let property wanting to buy a more expensive home will get a huge financial incentive to ‘churn’ their properties in the market to reduce the stamp duty bill, it adds, and home owners wanting to buy additional properties will try to avoid the stamp duty surcharge by putting buy to let properties and second homes in their children’s names.
The Home Owners Alliance is calling for a stamp duty surcharge that applied simply whenever someone buys a residential property that will not be their primary residence, such as a second home or buy to let investment, aligning it with capital gains tax, which also doesn’t apply to primary residences, but does to residential properties used for other purposes.
However, it says that the Treasury has devised a far more complicated scheme where everyone can buy one residential property, for any purpose, without paying the surcharge, but they must pay the surcharge if they are buying a second property for any purpose, even as a home, unless it is replacing an existing home within 18 months of the transaction.
People who buy a new home before they have sold their old one will have to pay the stamp duty surcharge, and then later reclaim it from the government.
