Suspension of stamp duty land tax to revive a flagging property
market could result in treasury shortfall of up to £7 billion
Leading business and financial adviser Grant Thornton says that
reports of plans by the Treasury to suspend stamp duty land tax
(SDLT*) for all home buyers could help kick-start the ailing
property market, but would result in the Treasury having to fund a
tax short fall of up to £7 billion from other sources.
However, if payment of SDLT was merely to be postponed the loss
to Treasury coffers would only be temporary and home buyers would
still need to pay SDLT at a later date. Latest figures show that
residential property transactions contributed £6.4 billion out of a
total £9.6 billion (includes non-residential transactions) in SDLT
receipts to the Treasury for the year 2006/07**.
Karen Campbell, head of Stamp Taxes at Grant Thornton, is
pleased to see the Government considering using the tax system to
revive the property market and economy, but if reports of a
complete suspension - rather than postponement - of SDLT are to be
believed then the Treasury would most likely recover the lost SDLT
receipts through alternative taxation - a difficult prospect with
an upcoming election and the current squeeze on personal finances
of UK individuals.
"SDLT in no small way hinders millions of potential home-owners
from jumping on the property ladder and an 'SDLT holiday' could be
just the move to put more liquidity into the housing market during
the current economic slump. However, the Government will want to
protect its tax revenues so it remains to be seen whether the
proposal will mean home buyers are completely exempt from paying
SDLT or will have to pay it at a later stage," she says.
Campbell states that, "One can only guess what the Treasury
might do, but a possible option would be to introduce a nil-rate
band of stamp duty for homes under £250,000 and introduce a top
rate of 5% SDLT on homes over £1,000,000, while having a series of
percentage rates of SDLT increasing in steps for homes between
£250,000 and £1,000,000. This might enable the Treasury to recoup
the losses from the nil-rate through the increased SDLT on more
expensive properties."
Campbell says it is interesting to note that Stamp Duty, which
is a strong revenue earner for the Treasury, was suspended from
December 1991 for nine months when the property market was
experiencing similar problems.
In the past 10 years, Stamp Duty and SDLT on residential
property has contributed some £31.5 billion to Treasury coffers***.
However, having steadily climbed since 2000, it is expected that
SDLT receipts will fall in this latest year owing to a reduction in
sales of both residential and commercial property.
Furthermore, the Treasury is expecting total stamp receipts from
Stamp Taxes (of which SDLT is a part) for 2008/09 to be lower than
the previous year, estimating a total tax take from stamp duties
for this year (08/09) of £13.4 billion compared to £14.1 billion in
the year before****.
Stamp duty is currently paid by residential property buyers, at
1 per cent for houses between £125,001 to £250,000 (£150,001 to
£250,000 in disadvantaged areas), 2 per cent for £250,001 to
£500,000, 3 per cent for £250,001 to £500,000 and 4 per cent for
£500,001 or more.
Notes:
* Stamp duty land tax (SDLT) is a
transaction tax, payable by the buyer, on the purchase of UK land
and property, generally based upon the value of the consideration
provided for the acquisition the an interest in land and property.
It was introduced in December 2003 as a replacement for Stamp Duty
on land and buildings.
**SDLT receipts according to residential and non-residential
property transactions T15.3 http://www.hmrc.gov.uk/stats/stamp_duty/table15-3.xls
*** SDLT receipts, Estimated yield attributable to residential
property, by Government Office Region, T15.2 http://www.hmrc.gov.uk/stats/stamp_duty/table15-2.xls
**** T1.2 HM Revenue and Customs annual receipts (1)