Stamp Duty- Can’t Pay… We’ll Take it Away

Our property man ponders stamp duty and whether we might see any relaxation in its current rate

Article by Charles Fraser-Sampson

The immediate aftermath of Brexit was supposed to be all economic doom and gloom, but over three months on, this hasn’t happened. In fact, quite the opposite as like other economic indices, UK house prices have also steadily increased. The mortgage lender, Nationwide, recently estimated an average home value increase of 0.6 per cent across the country in July and August alone.

A number of property commentators claim this is more likely attributed to the decreased supply of available properties on the market, some even predicting an up-coming 30 year low.  Thus we’re witnessing higher than expected prices being paid on this more limited housing stock as competition amongst buyers hots up.

Whilst there will always be a steady stream of people who have to sell for either personal or financial reasons (upsizing, downsizing, death, divorce or debt to name a happy few), owners holding onto property is not healthy.  For instance, in London, there are a great many properties which remain empty – thus further reducing the housing stock.  If these owners feel that now is not the right time to sell and they have no external pressures forcing them to do so, then they will simply hold.  An inevitable short-fall in supply serves only to increase average house prices and this will unflinchingly hit first-time buyers hardest.

The Bank of England has recently cut the base level interest rate to 0.25 per cent, making it even cheaper to finance a house purchase.  However, in reality it’s only going to make a small difference to monthly repayments, if any at all, as only around 45 per cent of current UK mortgages are ‘variable’ as opposed to ‘fixed’ rate.  If house prices start to rise too quickly again, any possible mortgage savings will soon be eradicated what with having to pay a higher asking price in the first place.  It’s therefore interesting to hear people discuss the possibility of a ‘Stamp Duty Holiday’ to reinvigorate what could otherwise quickly become an unattractive housing market.  The UK Government benefits greatly from the proceeds of Stamp Duty, over £10.5 billion for the last financial year, so it would be an enormous decision to decide to suspend Stamp Duty charges in their entirety.

In 1991, as a result of the economic recession, the Chancellor, Nigel Lawson, instructed a Stamp Duty break by raising the threshold at which point you paid any tax to £250,000; after which anything over you paid just 1 per cent!  How times have changed 25 years on, with the highest rate now being charged, potentially as high as 15 per cent.  Interestingly, in today’s money, that £250,000 equates to a little over £500,000 and depending on who you listen to, the average price of a London property is now somewhere between £550,000 and £600,000.

A brief respite also came in 2010 when Gordon Brown introduced a 0 per cent rate up to £250,000 but only for first-time buyers and against the backdrop of an economy that was still struggling to emerge from the biggest global financial crash ever.  However, despite a stronger economy today, we still haven’t solved the issue of a young generation, dubbed ‘Generation Rent.’  Unable to save for deposits whilst renting, reliant on cash handouts from parents releasing equity and not enough cheaper priced property in the areas where they need to be for work; the average age of a first-time buyer in London is now quoted as 34.  The ‘Help to Buy’ scheme is a leap in the right direction but surely another stamp duty break for first-time buyers would also help ease peoples’ financial burden and enable more to finally become home owners.

Without resorting to tedious facts and figures, the aim of the more recent Stamp Duty changes were to alleviate the amount of tax paid by the majority of house buyers in the UK, whilst seriously increasing it for the high net worth minority, especially those purchasing second homes or investment properties.  Understandably, it found political favour amongst the electorate.

One obvious problem with these changes is that it’s disadvantaged people that it wasn’t necessarily designed to, such as people wanting to transfer their life savings out of a poor performing savings account and into a yielding property as a pension plan.  They now have to pay an additional 3 per cent levy on top of the standard stamp duty charge given the purchase qualifies as a secondary residence.  When current generations now consider property to be their ‘golden goose,’ it does seem unfair to inflict an additional tax on normal people wanting to invest their savings in an asset class such as property, which over time is likely to provide a far greater return than any high interest account or standard pension plan given where interest rates now stand.

The rumour in the industry is not will we, but when will we likely see some form of Stamp Duty relaxation?  Our feelings at JMChase is that full-scale change is unlikely if only for the fact that it would be unpalatable for the British electorate who would see it as a gift to the wealthy and accuse the government of cosying up and pandering to international wealth.  After all, the last complete overhaul in Dec 2014 was timely in that it effectively quashed any further debate surrounding a ‘Mansions Tax’ championed by the Labour party.  Any change here would only see opposition parties again proposing similar schemes causing further market uncertainty for prospective buyers.

The property market, like any, is one that relies on sentiment and if there’s fear and uncertainty then buyers and sellers simply don’t commit.  Whilst market conditions appear to be steadily improving, who’s to say that when ‘Article 50’ is inevitably enacted, what this might then do to the UK housing market?  A rather cynical view is that when a bad economic forecast looms, a ‘Stamp Duty Holiday,’ in whatever form that may take, is a winning card to have up one’s Treasury sleeve.

It might focus solely on offering more incentives to the majority of core buyers without any let off for prime and super prime buyers, or make no distinction between primary or secondary residences.  What can’t be argued is that it’s a gloriously flowing tap of political good-will and revenue generation that can be turned on and off at any time; it’s just a question of when.  If you’re planning on buying then watch this space; you might not have to plead destitution and apply quite so much emotional blackmail to Mum and Dad after-all. riddle_stop 2


Charles works for JM Chase, a private client property consultancy / / 0203 7780355

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