Government ‘closes door’ on permanent stamp duty holiday for home buyers, saying £8bn-plus tax take will help it recoup Covid cash
- MPs called for a permanent stamp duty shake-up after temporary changes delivered a massive boost to the housing market in the past year
- The Government did not heed these calls in a response published today
- It said keeping the tax would help it achieve ‘long-term fiscal sustainability’
The Government will not heed calls to cut or reform the stamp duty tax on buying a home, despite short-term changes helping to turbo-boost the housing market over the past year.
In a document published today, it said that the tax, which raised £8.4billion for the public purse in 2019-20, was an important source of revenue at a time when it needed to replace funds spent during Covid.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said this response represented the door being ‘firmly closed’ on any changes to stamp duty.
Tax break: Home buyers have enjoyed lower rates of stamp duty – or paid none at all – since July 2020. However, the Government has indicated it does not plan to make long-term changes
MPs on the Treasury Committee had recommended that stamp duty be reformed after witnesses to its inquiry into tax after coronavirus described it as not being fit for purpose.
They said that the tax in its pre-pandemic form was ‘economically inefficient, causing damage to the economy by affecting when and how often people buy homes.’
But the Government’s response to its inquiry, published today, said: ‘ [Stamp Duty Land Tax] is an important source of Government revenue.
‘It is simple to collect and administer, and helps pay for the essential services the Government provides.
Stamp duty returns to normal: A timeline
Buyers will need to pay stamp duty on purchases over £125,000 from October
Until 1 July, no stamp duty is paid on the portion of a property purchase under £500,000.
From 1 July to 1 October the threshold moves to £250,000.
After that, stamp duty will revert to the system in place before the pandemic.
This means that stamp duty is payable on any portion of a home purchase over £125,000.
Buyers will pay 2 per cent of the value of the home on the portion between £125,001 and £250,000; 5 per cent on the portion between £250,001 and £925,000; 10 per cent on the portion between £925,001 and £1.5million and 12 per cent on anything above that.
First time buyers purchasing homes for less than £500,000 will not pay any stamp duty on the first £300,000.
‘At a time when the Government needs to consider long-term fiscal sustainability, any permanent cut or removal of SDLT would be likely to have a significant cost to the Exchequer.’
Evidence to the Treasury enquiry calling for more permanent changes to stamp duty included that from Paul Johnson, director of think tank the Institute for Fiscal Studies.
He said last year: ‘The current structure of stamp duty for housing is extraordinarily damaging to the housing market and the economy more generally, and that reflects the very high tax rate.’
But the Government today argued that many people were already exempt from the tax.
It said that 34 per cent of home buyers did not pay the tax in 2019-20, either because their property was under the minimum threshold of £125,000 or because they benefited from the lower rates offered to first-time buyers.
The Government already reformed the stamp duty system for residential properties in 2014, a move which it said had ‘cut the tax for 98 per cent of buyers who pay it.’
To help restart the housing market, which closed for eight weeks during the first national lockdown in spring 2020, the Government introduced a temporary stamp duty ‘holiday’ in July 2020.
This meant that no stamp duty was paid on the portion of a home purchase under £500,000, saving individual buyers up to £15,000.
It was due to end in March 2021, but was extended at that month’s Budget to 1 July. After that, the minimum threshold will be lowered until 1 October before the rates return to pre-pandemic levels.
Experts have said this tax cut has played a huge part in the house price increases witnessed in the past year, as it has given people an incentive to move.
Figures from Nationwide yesterday suggested prices had jumped by nearly 11 per cent in the year to May.
‘The Government pointed out that the system was reformed in 2014, and is a major earner, which is particularly vital at the moment,’ Coles added.
‘It also gives them a lever to pull in certain circumstances to encourage specific short-term behaviour.
‘The stamp duty holiday worked in stimulating the property market when it reopened last year specifically because it was a time-limited offer. Removing this tax would mean they could no longer operate this particular lever.’
The Government also rejected the Committee’s recommendation that it draw up a draft post-pandemic tax strategy for consultation, saying that Chancellor Rishi Sunak had already outlined a five-year plan in the Budget.
The Committee had proposed a number of priorities for reform and recommended setting out strategies for net zero and VAT, as well as stamp duty.