David Hannah, Principal Consultant of Cornerstone Tax, discusses why the holiday ‘cliff-edge’ must be avoided and how this can be achieved
Statistics released by HMRC have today given a fresh boost to calls to extend the stamp duty holiday that is set to finish at the end of March. The figures show that the holiday had a substantial impact on the number of transactions taking place in Q4 of 2020, while having a much smaller impact on the total tax revenue brought in by Stamp Duty Land Tax. Transactions were up 43% on Q3 2020 while tax receipts were just 16% lower than in Q4 2019, when no incentives were in place and the threshold was far lower for homebuyers.
This has led some commenters to call for an extension to the holiday or for the scrapping of the tax altogether at the lower end of the market, as a way to keep the market moving.
The stamp duty holiday means homebuyers across England and Northern Ireland pay no stamp duty when purchasing homes up to a value of £500,000, with a reduced rate for homes above that. For someone buying a £500,000 property, the saving is worth £15,000.
The end of the holiday on 31 March 2021 has led to a backlog in transactions as the logistics of the housing market have not been able to keep up with demand, whilst many others have seen agreed upon deals fall through as homebuyers and sellers have pulled out amidst concerns that the transaction will not be completed prior to March 31st.
David Hannah, Founder and Principal Consultant of Cornerstone Tax, discusses why the stamp duty cliff edge must be extended or softened in order to avoid a significant fallout for the property services industry, alongside sellers and buyers alike:
“These statistics demonstrate what we have known for some time, that the lower end of the market – while responsible for the majority of purchases – has a smaller impact on the overall tax take. It also reiterates the need for some kind of move to avoid a stamp duty holiday cliff-edge.
Calls to make the holiday permanent or scrap the tax altogether seem unrealistic given the levels of public debt and the £12 billion tax take it generates each year, but having such a strict cut-off point, particularly in such a turbulent and difficult housing market and economic climate could result in a catastrophic drop in demand and prices.
Raising to the nil-rate band, to somewhere around £300,000, will benefit the majority of buyers without affecting a large amount in tax revenues, which is obviously key to the recovery of public finances. These statistics demonstrate the importance of keeping the market moving to other sections of the economy and first-time buyers, those likely to spend less than £300,000, are the driving force behind this movement.
Home ownership is key to the UK economy, upward mobility and the aspirations of many that are currently struggling to get on the property ladder. Not only this but making it easier to move house without being penalised for doing so will make it easier to move to areas of growth and where jobs are. Especially important as we see a de-urbanisation and migration away from cities in the wake of the pandemic.”