Stampede to escape stamp duty puts pressure on the house buying market
Home buyers in Wimbledon paid tens of millions of pounds in Stamp Duty Land Tax (SDLT) last year, as the property industry calls for an extension of the current holiday on the tax.
From 8 July 2020 the SDLT zero rate band for residential properties, at which a purchaser does not pay any SDLT, was temporarily increased until 31 March 2021. On 1 April 2021, SDLT rates will revert to their previous state.
In a letter to the Chancellor, leading property organisations warned housing transactions across the country could fall off a ‘cliff edge’, because the industry does not have capacity to deal with the current surge in demand before the 1 April deadline.
“Stamp Duty Land Tax raises more than £8 billion per annum for the Treasury, but is a heavy, immediate tax on transactions that contributes to England’s dysfunctional housing market,” explains Zah Azeem, Partner at Wimbledon-based Scrivener Tibbatts.
“Before the pandemic revenues from SDLT had been rising steadily since 2008/09 as a result of increasing house prices, higher tax rates on more expensive properties, and the 3% surcharge imposed in 2016 on investors and second-home buyers.
“Twenty years ago, buyers of median-priced homes paid less than £1,000 in stamp duty and that was true in London, as well as in England overall. Since then SDLT on a median-priced home in England has more than quadrupled, and in London it has gone up by a factor of more than 12. The gap between London and the rest of the country continues to grow.”
Because of higher property values in London and the South East, these regions account for more than 2/3rds of SDLT revenues, whereas they account for only around 30% of dwellings, according to this research conducted by the London School of Economics.
The LSE goes on to explain that the tax is highly progressive at least in terms of dwelling values: in 2016/17, a fifth of receipts came from the purchases of properties in the highest tax band, although these properties accounted for well under 1 percent of transactions.
Even so, the majority of revenue comes from sales of much more typical homes, such as those in Wimbledon: 58 percent of revenues were from properties worth between £250,000 and £1 million.
Across England, residential and non-residential properties worth £406 billion changed hands last year, contributing £12 billion in stamp duty.
Typically, every home buyer must pay SDLT on all properties over £125,000, or £300,000 for first-time buyers. However in July the Treasury announced a temporary stamp duty holiday to encourage people to buy houses in the midst of the COVID-19 pandemic. This applies for all sales of £500,000 or under until 1 April 2021, and the Government said it would save buyers an average of £4,500 each.
Although there are still months to go before the deadline, the system is already under pressure.
Zoopla said recently that around 140,000 more people are waiting to complete sales than this time last year, warning those who leave it to January to begin their search might struggle to complete a sale in time.
Property professionals representing the home moving process are urging the Government to act swiftly to release some of the pressure on the market.
Reported here groups including the National Association of Estate Agents, Propertymark, the Guild of Property Professionals, the Residential Property Surveyors Association and conveyancers Bold Legal Group, sent a letter to Chancellor Rishi Sunak calling for “urgent action”.
They want the Government to extend the stamp duty holiday by at least six months and to make an announcement before Christmas. They also want it to work with the industry to develop a method to help smooth the end of an extended stamp duty holiday “to prevent another cliff edge”.
“Much as we might like that to be the case, it’s not going to happen,” concludes Zah. “The Chancellor has just borrowed £300 billion to help escape the effects of COVID-19, he needs to find ways to pay it back, somehow. Beginning on April Fool’s day seems as good a day as any.”
If you would like to discuss something related to a valuation please contact Zah via email at email@example.com or call 020 8947 7040.