ROBIN GOULD

Robin Gould
Stamp duty – why we need urgent reform
25 June 2018

The recent court case between HMRC and the developers of Battersea Power Station - which the latter lost, ending up with a stamp duty bill of more than £50m - started me thinking. Fifteen years ago, when we first set up Prime Purchase, more than 60 per cent of transactions in the south and southwest were on behalf of clients buying second homes.

A fair number of these transactions were for very wealthy people buying another one of many homes around the world. However, a high proportion were ‘normal’ people taking advantage of the price differential between London and country to buy a country home. Others were investing bonuses. Whatever the reason, the average purchase price was well over £2m.

This has all but stopped and not just because bankers don’t have a bonus to spend or if they do, don’t want to be seen to be conspicuously spending. Nor is it sentiment about the general economic outlook. No, the reason is transaction costs; the highest proportion of which is Stamp Duty Land Tax (SDLT). If you buy a second home (and this needs to be qualified by saying if you have any other home or a beneficial interest in one anywhere in the world, so it affects a lot of people) a 3 per cent surcharge is due on top of the normal scale. For any balance above £1.5m, the headline rate of tax is 15 per cent. So if you are buying a £2.3m property, stamp duty will cost you more than £258,000 - enough to make even the wealthiest eyes water.

The natural reaction is to negotiate the price to reflect these costs and recent adjustments in property prices have to some extent been about this, especially in London. However, it has had a wider effect, changing the dynamics of the market by drastically reducing the number of people either willing or able to afford such penalising taxes.

This is not a political rant: stamp duty needs reform. Churn, i.e. greater transaction volumes, is good news all round and not just for the property market, which is fed from the top down, but the wider economy. A slower property market adversely affects local businesses, such as builders, architects etc. In the run up to Brexit, everyone needs a boost.

Nobody likes paying tax and in this instance people have a choice whether to incur it all. Having tax at a level that puts people off from incurring it in the first place shows the system is broke and needs rethinking.

 

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