Stamp duty land tax (SDLT) is paid on land transactions in England and Northern Ireland (Scotland and Wales have different provisions). Recent years have seen a number of changes to SDLT as it applies to residential property, with the majority resulting in higher charges.
- December 2014 changes increased the tax due on residential properties valued at more than £937,500.
- Rates of SDLT for those acquiring second homes or buy-to-let residential properties were increased from April 2016.
- In November 2017 a new SDLT relief for first-time buyers of residential property worth less than £500,000 was introduced.
The rationale for the residential property changes is very clear – the Budget 2017 policy paper stated that the Government is, ‘determined to fix the dysfunctional housing market, and restore the dream of home ownership for a new generation.’ One of the mechanisms the Government has employed in an attempt to make this dream come true has been to decrease SDLT rates for lower value properties, while increasing rates for high value properties and purchasers owning multiple homes.
So, now that the new rules have had a chance to bed in, what has happened? Let’s look at some statistics and commentary.
- According to the Royal Institution of Chartered Surveyors (RICS), the number of buy-to-let residential properties coming on to the market has reduced significantly as a result of tax changes affecting landlords, including the SDLT changes outlined above.
- RICS also forecasts that the cost of renting will increase by 15 per cent by the middle of 2023.
- HMRC’s quarterly SDLT statistics for June 2018 show that 121,500 first-time buyers have benefited from the new SDLT relief since its introduction in November 2017, saving over £2,300 each on average.
- HMRC’s statistics also show that residential property SDLT receipts for the second quarter of 2018 are 15 per cent lower than those for the second quarter of 2017.
These results are something of a mixed bag. The SDLT changes appear to have been very effective in putting off rental landlords, which should increase the availability of houses to buy. The savings in SDLT for first-time buyers will also be very welcome to most people setting up their first home.
On the other hand, if the reduction in rental housing causes a hike in rents, it will be ever harder for new buyers to take the first steps towards home ownership without family help. This could make it more difficult for those who are not already affluent to buy their own home – the opposite of the Government’s intention.
Where to next?
To make its dream a reality, the Government may need to think much more radically. Raising the threshold for SDLT might help, but if matched with SDLT increases for more valuable properties this could create huge problems for the already stagnating property market in London and the South East. A move away from SDLT altogether is unlikely, because the tax is cheap to collect and hard to avoid, but abolition would put more money into the pockets of purchasers at the time they need it most. Mansion taxes and revamped council tax bands may be political poison, but both would spread the cost of owning property over time. Maybe it’s time to be brave?