Aided by socially distanced surveys and ebbing lender concerns regarding loan-to-value ratios in an uncertain market, property sales in England are making a patchy recovery. With Chancellor of the Exchequer Rishi Sunak known to be looking at temporary VAT rate reductions to encourage customers in some key sectors of the UK economy, we suggest that he might like to target a stamp duty land tax (SDLT) reduction at one particular part of the English residential property market. Following the devolution of some taxing powers, SDLT now applies only in England and Northern Ireland; other equivalent taxes are levied in Wales and in Scotland.
So which part the English property market do we have in mind?
With the first wave of coronavirus in decline, during lockdown many people will have benefited from the space available in larger homes. Those same people may also have begun to appreciate that they have more space than they need so might be beginning to think about downsizing.
There are many good reasons for this. For example, older people may be able to maintain independent living for much longer in a smaller property than in a large one. Some might welcome the availability of extra cash to boost their income, especially as many companies have curtailed dividends because of the pandemic. Last, but definitely not least, surplus funds might be used for the benefit of children who may be struggling with career uncertainty or difficulty in getting on the housing ladder following the coronavirus. Intergenerational inequality remains an issue.
Of course, tax is only one small element in this but a simple SDLT change could make a significant difference. The amount of SDLT payable on trading down to a smaller property can be a major deterrent to downsizing. This may seem irrational but it’s worth remembering that residential SDLT rates may currently be as much as 12 per cent for purchasers do not own another property. In cash terms, a person downsizing from a large family home now may have to pay more SDLT than the total cost of the first home they bought decades ago.
If the SDLT bill on acquiring the downsized property is a significant deterrent, then why not give a discount? For example, if a homeowner downsized to a property costing only 50 percent of the proceeds of sale of the home they sold, perhaps they should be entitled to a discount of 50 percent on the SDLT bill. There’s even scope for a sliding scale of SDLT discounts:
|Purchase price as percentage of sale price
||SDLT discount percentage
|20 or less||100|
We recognise that this is a rough-and-ready measure which might require improvements. For example, to avoid a tax-driven rush to the country the sliding scale might have to reflect price points in different parts of the country. A person selling a property in the ninth decile of property values in, for example, London would not qualify for a discount on a replacement property in, say, Lincolnshire unless the new property fell in or below the fifth decile of local property values.