Stamp Duty has been in the news a lot recently, what with the Stamp Duty holiday, the resultant surge in house buying and the rush to complete before the holiday ends. But Stamp Duty has long been a controversial issue in the UK property market. So here we’ll look at why it is such an issue and what could happen with Stamp Duty in the future.
First of all, what exactly is Stamp Duty supposed to be? Originally Stamp Duty was, as the name suggests, a fee for stamping the sale documents in a property transaction. But over the years it has developed into more than that. It has developed into a form of tax – Stamp Duty Land Tax or SDLT to give it its official name – a way of raising revenue for the Government.
And that, perhaps, is the root of the problem. Because Stamp Duty is an extra cost of moving that house buyers can’t control. Buyers can find a property that suits their budget, and can shop around for conveyancing and other costs like removals and renovation. But Stamp Duty is something that can’t be avoided.
Stamp Duty is what might be considered dead money too. It doesn’t add anything to the value of a house. (In fact, it might reduce its value as buyers have to allow for it in their offer.) The money spent on Stamp Duty doesn’t appreciate in value as, hopefully, the money you put into your house is likely to do.
More than that, Stamp Duty doesn’t affect every property transaction equally – even when it is applied at a flat rate.
Stamp Duty has a relatively small impact on the value of houses at the cheaper end of the scale. That has perhaps allowed the prices of smaller properties to race ahead over recent years, and helped to stretch affordability.
Stamp Duty has more impact on the value of houses at the more expensive end of the scale, including prime property. Buyers of such property pay more Stamp Duty but are usually more affluent so it affects them less. That has perhaps meant that prime property has remained good value, and attracted affluent buyers including those from abroad.
Stamp duty particularly impacts first time buyers, whatever property they are buying. First time buyers not only have to find the money for Stamp Duty but a deposit and all the costs of setting up home too. And first time buyers are an element within the property market that keeps everyone else moving. If they have difficulty buying it impacts the entire market.
To complicate matters, in recent times Stamp Duty has become not just a tax but a political tool too. Interestingly, it seems to have become a tool that is available to be deployed as part of the annual Budget – in much the same way as income tax changes or fuel duties.
Stamp Duty has been devolved to the Scottish Government since 2015 and has become Land and Buildings Transaction Tax (LBTT). It has been devolved to the Welsh Government since 2018 and has become Land Transaction Tax (LTT).
In England there has been a great deal of tinkering with the system of late, which undoubtedly has also led to some reshaping of the property market. A system of tiered rates has been introduced replacing the original ‘slab’ system. First time buyers have been exempted from Stamp Duty on the amount of a purchase up to £300,000. Buyers of additional properties, including investors, are charged a 3% supplement whatever the purchase price. A non-UK resident’s supplement is due to be introduced.
The Coronavirus Stamp Duty ‘holiday’ has exempted all but buyers of additional properties from Stamp Duty, up to a value of £500,000, until the end of March. (At time of writing it doesn’t seem unlikely that date will be extended.)
So, what’s the future for Stamp Duty and what do we all need to bear in mind?
Will Stamp Duty be scrapped entirely? Some people believe such a move could give the property market a new lease of life and help it through what are likely to be tricky economic times ahead.
Complete removal seems unlikely though, if only due to the revenue it generates. SDLT receipts are currently running at around £11,600 million a year.
Some commentators also believe that reducing or removing Stamp Duty does not actually save buyers any money as it effectively causes house prices to rise.
Will Stamp Duty be changed? That seems much more likely. At least by way of changing the rates and who pays what, and perhaps something more radical. For example, there have recently been suggestions that Stamp Duty as well as Council Tax should both be scrapped and replaced with an annual property tax instead.
So why all the fuss about Stamp Duty then?
It’s fair to say that, from something that started as a small and simple concept, Stamp Duty has become a bit of a monster. And something of a political monster too. Some might even say a bit of a mess.
Today Stamp Duty is not just a tax but is a key factor in the future prospects for the property market. It is actually something that decides whether people can move, or can afford to move. And just as importantly whether investors will invest in the property market.
So today, Stamp Duty has become something that can and will have a major impact on the property market. Any changes can and most likely will prompt the property market to boom, or perhaps to shrink, regardless of the other forces which impact the market. So what happens with Stamp Duty this year and every year going forward is something that everyone in the property market should monitor and bear in mind.