Hopes, if not expectations, were running high last week when the chancellor stood up at the despatch box in the House of Commons. Much of the property industry had been lobbying hard for Philip Hammond to reverse at least some of the changes to stamp duty land tax (SDLT) made by his predecessor George Osborne. It wasn’t to be.
In hindsight, perhaps it was too soon to have expected a U-turn, even from a government so purposefully burning its bridges with the previous administration.
While Hammond had shown no concern about ripping up some of Osborne’s most prized policy initiatives, rowing back on SDLT would have been difficult to square with a narrative constructed around helping those “just about managing”.
But square it he must, because the stamp duty surcharge is hitting the JAMs and first-time buyers every bit as hard as people looking to buy second homes - and it could have disastrous implications for the delivery of new housing.
The good news is that Hammond has another opportunity to address this critical issue in the Budget next March. That is why Property Week is this week launching a campaign calling on the chancellor to Call Off Duty.
Dear chancellor, you are stifling the housing sector. We are calling on you to Call Off Duty
Over the coming weeks, we will be putting the case that SDLT is an absurd and dangerous tax that is stifling the housing industry. Moreover, far from swelling the Treasury coffers, it will ultimately slash the tax take - if it hasn’t already.
The key planks of the argument have already been well rehearsed, but so far they have fallen on deaf ears.
A more nuanced and persuasive argument clearly needs to be put to Hammond.
This is your campaign
The Call Off Duty survey is live and waiting for your responses -
Tell us what you want…
Look at it as a form of public consultation - something Osborne failed to conduct before announcing the changes two years ago. We hope that Hammond will take note.
It is vital he thinks again.
Concern for the housing sector
To be clear, this is not a campaign launched on behalf of wealthy people seeking to lower their tax bills. It is one born out of concern for the housing sector - and for the sake of the public finances.
The changes have been crippling for housebuilding in general and particularly for the delivery of affordable homes, the nascent build-to-rent (BTR) sector and retirement housing. They have also resulted in less money flowing from homeowners to the Treasury, despite the former chancellor’s claims to the contrary.
First, consider how Osborne’s reforms have damaged the burgeoning BTR sector. In much of the country, where property values are lower than the capital, investors used to be able to buy up multiple units and pay either 0% or 2% in domestic SDLT. With the 3% surcharge, they are being forced to cough up 3% or 5%.
The changes are hampering major-scale investment too. When buying six or more properties, investors can opt to pay commercial SDLT, and once the 3% surcharge is added to the 5% domestic rate on values over £250,000 they would be crazy not to. Unfortunately, Osborne also raised the rate on commercial SDLT from 4% to 5%.
Next, think about the changes to the old ‘slab’ SDLT system. The changes sought to remove distortions in the market and to that extent were welcome. But there are problems with the thresholds at which higher rates kick in, the punitive levels charged and the fact the system takes no account of the differing housing pressures in London and the South East compared with the rest of the country.
The result has been that sales in high-value locations have fallen off a cliff.
A tax on social mobility
Take a home valued at £1m. That price may buy a mansion in parts of the country, but doesn’t go far in vast swathes of the capital.
For many families, the 10% SDLT charged on properties valued at over £925,000 will make the difference between being able to move and staying in cramped accommodation. It is a tax on aspiration and on social mobility. Let’s not forget that under former chancellor Nigel Lawson the higher rate of stamp duty stood at 1% and he considered that too high (see Steve Norris’s comment).
Next, think about an older couple who find themselves rattling around in a home too large and expensive to maintain. Say their house is in an area of London that has seen rapid gentrification and is now worth £2m. They wish to downsize locally, so a flat is likely to set them back around £1m.
Under the current regime, they face a double whammy. First, the people buying their home will expect a discount as a result of the 12% SDLT they themselves are facing. Second, the old couple will still get clobbered by the 10% rate that applies up to £1.5m. That means they would face losing hundreds of thousands of pounds they want to pass on to their loved ones.
- Now The survey on our dedicated microsite is live and waiting for your responses
- 9 January Deadline for responses
- 20 January Property Week publishes the Call Off Duty list of demands
- February We deliver our list of demands to 11 Downing Street
- March (Budget day yet to be confirmed) The industry awaits the chancellor’s budget speech with bated breath
- One minute later We celebrate victory, or…
- April We regroup and carry on putting on the pressure in the build-up to the Budget Statement in the autumn
Confronted by such a decision, most people will continue to under-occupy homes that could otherwise be put to good use by younger families.
This obviously has implications for the development of dedicated housing for older people. But the punishingly high rates of SDLT also mean many other people are put off from buying, with the result that developers working in high-value areas have little incentive to progress their schemes.
That has stark implications for the delivery of lower-value homes for private sale, not to mention shared ownership units and homes for intermediate or social rent. Given the country is building half the number of units most experts agree is needed, a government policy that discourages development is utterly bizarre - and surely must be at least modified.
Then there is the matter of whether the high rates of SDLT on expensive properties are actually in the Treasury’s interests. Oxford Economics has already shown that had Osborne’s changes not come into force, SDLT receipts from homes worth £1m or more would have been 10% higher. The economic activity that flows from residential transactions - everything from banking to furniture sales - is also being lost.
In short, the current regime is the very definition of a lose-lose situation for UK housing and the Treasury coffers. Back Property Week’s campaign to Call Off Duty and let’s do something about it.
For Call Off Duty to be a success, we need your help. A dedicated survey is ready and waiting to receive your comments and recommendations in response to the questions below.
Please lend us your support. Add your voice to the industry heavyweights backing the campaign and help us put such a persuasive case to Philip Hammond that he is compelled to Call Off Duty in the March Budget.