As you will be aware from our earlier blog, the government introduced a Stamp Duty Land Tax (SDLT) holiday which began on 8th July 2020 and ends on 31st March 2021.
The SDLT holiday was introduced in order to be a “temporary relief to stimulate market activity and support jobs that rely on the property market”. It did this by raising the threshold where SDLT becomes payable from £125,000 to £500,000.
Although it is too soon to see the full impact of the SDLT holiday on the property market, in the short-term it can’t be ignored that there has been boost to the property market. Recent figures have shown an encouraging increase in the number of property transactions, reversing the dip we saw during the first lockdown in 2020.
Now we’re moving towards the end of the SDLT holiday, we look ahead at a few options the government may consider in order to continue to stimulate the market, or even provide for a more wholesale reform of the means by which property is taxed.
A number of calls have been made from both inside, and outside the property industry for an extension to the SDLT holiday for up to 6 months, or alternatively, a tapered end to the SDLT holiday.
Buyers are understandably cautious in the current climate. The full economic impact of the pandemic is yet to be seen, and large swathes of the economy are still being supported by the government through initiatives such as the furlough scheme. Once that support ends, and the economy starts to recover from the pandemic, there is some debate as to how to continue to stimulate the property market. The potential for a reduction in demand and a lack of appetite to risk moving during this uncertain period is real.
There is also concern that already agreed transactions which do not complete by 31st March 2021 may fall apart, with people being unable to afford, or unwilling to pay the increased SDLT payments levied after this date. This could have a knock-on effect, particularly for transactions caught up in a chain.
An extension to the SDLT holiday, or a tapered end to the SDLT holiday has been proposed to help the property market weather this uncertain period. It is argued that this will give people the incentive, and confidence to continue to move, whilst also avoiding the effect the end of the SDLT holiday may have on already agreed transactions.
At the time of writing, the government is not keen on granting an extension to the SDLT holiday. SDLT is an important source of revenue for the government raising several billion pounds each year. The government has also pointed to other policies which will continue, such as the support to first time buyers, as means by which there will still be support for the property market. Although it is not beyond the realms of possibility that the government may change their mind and extend the SDLT holiday, we cannot rely on this and must prepare for the SDLT holiday to end.
That leads us onto the other, more long-term change which is currently being discussed in relation to how property is taxed.
You may have heard of discussions relating to the introduction of a “proportional property tax”, which would replace both SDLT and Council tax. Although there are several different interpretations as to how this tax would take shape, the movement is currently being spearheaded by the “Fairer Share” campaign. Fairer Share argue that SDLT and Council tax should be scrapped, and instead, all property owners should pay an annual tax of 0.48% of their property value.
Supporters of a proportional property tax argue that the current system of property taxation is broken.
It is argued that SDLT discourages people from moving and makes home ownership less attainable by increasing the costs associated with purchasing property. Council tax on the other hand, is seen as outdated and unfair. The Council tax for your property is currently calculated by using a valuation for your property, which was undertaken as far back as 1991, to place your property into the relevant tax band for your local area. This means areas of the country such as London and the South East have, despite seeing massive increases in the value of their property in the last few decades, continued to pay proportionately less council tax than many other areas in the country.
The campaign states that proportional property tax would remove the need to pay SDLT when buying property, therefore providing the benefits we’ve seen from the SDLT holiday on a permanent basis, while providing a fairer system whereby over 75% of the country (mostly those in areas outside of London and the South East) will benefit compared to the current council tax system.
There are however those who are critical of the suggested reforms. It has been stated that this kind of tax policy will adversely affect those who are asset rich, and cash poor, or people who have moved to an area which has since seen a substantial increase in property prices. Such an increase could put an unreasonable strain on their finances and could force them to move to a less valuable property. This tax could also be seen as a form of “wealth tax”, which creates an anti-aspirational sentiment.
The Fairer Share campaign has already received over 100,000 signatures in support, and we should see a parliamentary debate on the topic in due course. It is worth mentioning that such a radical change to the system of taxation for property would not happen overnight. It will be interesting to see how this debate unfolds.
Although we do not know the government’s take on a proportional property tax, and it remains to be seen as to whether or not the government will change their position to support a SDLT holiday extension, there is certainly a lot to be aware of moving forward.