A recent House of Commons Briefing Paper on Stamp duty land tax (SDLT) on residential property includes some interesting statistics, prompting us to consider the question – who really bears the burden of tax?
SDLT applies to property purchases in England, Wales and Northern Ireland. A different tax known as Land and Buildings Transaction Tax (LBTT) applies to property purchases in Scotland.
SDLT changes introduced by the Autumn Statement 2014 mean that since then SDLT on residential property has been charged at marginal rates applying to each slice of the property price rather than the previous system whereby a single rate applied to the whole purchase price. At the time it was anticipated that 98 per cent of residential property transactions would benefit from a reduction of SDLT under the new rules. Nevertheless SDLT receipts in 2015/16 totalled £10.7 billion, £7.3 billion of which was from residential property, and are now forecast to rise to over £17 billion by 2020/21.
So who pays all the tax? Recently published statistics show that around 2 per cent of properties potentially liable for SDLT were sold for over £1 million accounting for 30 per cent of the SDLT yield on residential property. So the wealthy pay a disproportionate amount of tax.
However SDLT receipts represent less than 2 per cent of total government revenue from taxes. Income tax on the other hand represents a quarter of receipts. Naturally everyone feels they pay more than their fair share of taxes but statistics released by the Institute for Fiscal Studies (IFS) show that the top 1 per cent of income tax payers contributes 27 per cent of income tax receipts. The figures are not dissimilar to those for SDLT. So, again, the wealthy pay a disproportionate amount of tax.
But does this really illustrate that the real bearers of the burden of tax are those wealthy individuals with large incomes and the financial capability to purchase the higher value properties?
Receipts from Inheritance Tax (IHT) represent less than 1 per cent of the total tax take. Only 6.1 per cent of UK estates are liable to pay any IHT and this is expected to reduce slightly from 2017/18 with the introduction of the Residence Nil Rate Band. But does this mean that the top 6.1 per cent pay 100 per cent of the tax? Not necessarily so because those figures may exclude estates which are worth substantially more and would pay tax but for the availability of various reliefs. So perhaps the picture isn’t as clear as the statistics imply.
For more information please get in touch with Jackie Hall, or your usual RSM contact.