Figures released by HM Revenues & Customs (HMRC) in October 2019 have revealed that stamp duty receipts were down 7% on the previous year.
Standing at £11.94 billion, the fall in the Treasury’s take from completed property and land purchases is the largest since the peak of the recession in 2008/9.
What fuelled it?
It’s thought that the decline has been largely fuelled by a 10% drop in residential stamp duty receipts, but there are other factors, which we’ll cover later.
HMRC believes this is because of the new stamp duty holiday, which is designed to help first time buyers.
Fingers have also been pointed at devolution of the property tax to Wales, which has been allowed to set its own rates since April 2018 under the Welsh Assembly’s land transaction tax. It was a similar story in Scotland, when their own land and buildings transaction tax was introduced in April 2015.
Experts believe the fall in stamp duty receipts would have been much lower if these measures weren’t in place – around 3%, in fact.
Focusing on first-time buyers
The first-time buyers’ stamp duty holiday has undoubtedly had a significant impact on the dip in stamp duty receipts, but there are other contributing factors.
In 2017, stamp duty was changed so that first-time buyers were all but exempt from the tax. When purchasing a home up to the value of £300,000, people within that category would no longer have to pay any stamp duty. If they spent up to £500,000, they’d still be exempt on the first £300,000.
This was of course great news for first-time buyers, but had a negative impact on stamp duty income for HMRC.
However, it’s thought that the cost of these exemptions to the Treasury should have been no more than £560 million a year. So, what else caused the drop?
The top of the market
There have been some changes to stamp duty which have also impacted the top of the market.
For instance, increased rates for people buying a second home or particularly expensive properties have slowed down the premium end of the market, which has in turn impacted the entire housing chain.
This has been particularly prevalent in London, where house prices have been consistently falling for the last 12 months – the largest decline in a decade.
It stands to reason that the high end of the property market generates some of the biggest receipts for HMRC, and with demand suppressed, it should come as little surprise that stamp duty income has been so adversely affected.
In September 2019, the Office for Budget Responsibility noted that stamp duty revenue is already down 5.9%. They’re blaming the “slowing housing market”, but others would undoubtedly point to Brexit and the uncertainty surrounding the forthcoming general election.
Most would agree that a healthy economy is driven by a healthy housing market, and there are generally two schools of thought on what the government can do to help.
The first suggests they should reverse or significantly overhaul stamp duty, while the counter argument suggests they need to instead catalyse a stagnant market. Which option is more sustainable is currently open to debate.
Will stamp duty be abolished?
The government has a track record here. As noted, stamp duty has previously been abolished for first-time buyers, but could it be removed entirely?
Probably not. Sorry.
The more likely option would be to reduce stamp duty in the hope it will ignite more house sales and raise the value of receipts generated for HMRC.
The Treasury and UK Finance have both refused to comment on the findings, and with all eyes currently trained on Brexit and the looming general election, finding any concrete opinion on the housing market from Whitehall is tricky.
So, if you’d like to discuss property taxes or have any questions about the current rules surrounding stamp duty, just get in touch with the Chandlers team.