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Sunday, October 24, 2021

Stamp duty holiday: Success or failure?

IDBS ART GALLERY

Home buyers have benefitted from lower or no stamp duty, a tax paid on property purchases, in some parts of the UK, for more than a year.

Ministers introduced tax holidays on stamp duty or equivalent taxes to stimulate the housing market as the country emerged from the first national Covid lockdown last summer.

The market has been buoyant since then, immune to the economic shock caused by the pandemic. House prices and sales both reached all-time highs. According to official data, the average cost of a residential property in the United Kingdom increased by 8% in a year. Increases of more than 20% were recorded in some areas.

In England and Northern Ireland, stamp duty rates have now returned to pre-pandemic levels. Similar taxes in Scotland and Wales have already been reinstated.

Yet, debate continues over whether the tax break policy was a success, or unnecessary.

Two experts, representing both sides of the argument, have shared their views.

‘The stamp duty holiday should continue’

According to Mark Bogard, chief executive of The Family Building Society, the pandemic meant that ministers could use stamp duty holidays to address issues with the UK housing stock.

“Stamp duty is a significant tax, but it is extremely simple to avoid by simply not moving,” he says.

People have been staying in the same house for longer than in the past. This is especially true for potential ‘downsizers’ who have been put off moving because they would normally have to pay stamp duty, he claims.

Mark Bogard says the policy stimulated the economy

The stamp duty holiday, he says, is “very elegantly crafted.”

“People appear to have forgotten that there was no [tax] break for buy-to-let investors. There was no tax break for buying a second home. There was no holiday for people who bought from other countries “he claims.

Instead, he claims, it was focused on people purchasing homes, which created its own economic stimulus.

People spend significant amounts of money sprucing up a property before selling it, money is spent during the buying and selling process, and buyers spend again to make changes when they move in, according to him.

The stamp duty holiday resulted in an increase in sales, which benefited all associated sectors such as home improvements, valuations, and removals. It also aided the Treasury in bringing in additional tax receipts, such as from VAT.

He also claims that because stamp duty was not paid on purchases of up to £500,000 in England and Northern Ireland during the first phase of the stamp duty holiday, it benefited the country’s poorest areas. That, he claims, aided the government’s leveling-up agenda.

“I can’t see any argument for not continuing with [the stamp duty holiday],” he says.

‘It just made a hot market even hotter’

Lindsay Judge is the research director for the Resolution Foundation, a think tank that focuses on low-income people.

She believes the chancellor’s decision to offer a stamp duty holiday to stimulate the housing market, which is critical to the overall economy, was “completely understandable.”

She does, however, believe that the chancellor’s March decision to extend the tax break in England and Northern Ireland was unnecessary.

Lindsay Judge says there were other factors driving the market

“When it became clear that it was inflating house prices, the government did not turn off the tap,” she says.

“It was largely unnecessary because there had been other stimulative effects in the housing market.”

She says that many people who continued their jobs unaffected by the pandemic built-up large amounts of savings, which they could then use for house moves.

The Covid crisis also changed people’s preferences, increasing demand for larger houses with a garden in more leafy areas. As a result, potential buyers brought forward house moves they had planned for the future.

House prices rose sharply as a result of the increased demand that was not met by an increase in supply. She points out that house prices in Scotland have risen despite the end of tax breaks for residential Land and Buildings Transaction Tax at the end of March.

She adds that this has made the prospect of purchasing a home even more distant for prospective first-time buyers.

By providing a stamp duty holiday to all buyers, first-time buyers lost the rare advantage they had previously. Prior to the pandemic, their own stamp duty exemption had given them some negotiating power in the market.

She claims that the stamp duty holiday, which the Office for Budget Responsibility estimated would cost the taxpayer £4.7 billion over two years, simply made “an already hot market even hotter.”

SourceBBC
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