Please note: The information contained in this article is correct as of 11/01/21. Due to its ongoing nature, the situation is subject to change so we would always advise you speak with a solicitor for specific advice.
Back in July, the Chancellor announced an increase of the standard rate Stamp Duty Land Tax (SDLT) threshold from £125,000 to £500,000 in the hope of keeping the property market buoyant during the unusual economic times brought on by the COVID-19 pandemic.
The current Stamp Duty “holiday” is due to end on 31st March, after which standard rate SDLT will return to being payable on purchases for more than £125,000. The Higher Rate of SDLT has remained payable on all second properties throughout.
There was no immediate impact on the property market but during the last few months we have seen a significant increase in property transactions. The question we are now regularly being asked is, with the effect of the pandemic likely to be felt by the economy for some time still and the unknown impact Brexit will have on the economy, will the Stamp Duty holiday be extended?
Whilst, at the time of writing, we don’t know the answer to that question, recent research by Kensington Mortgages suggests that a permanent extension of the Stamp Duty threshold to £500,000 would provide new tax revenues ranging between £2.3 and £4.1 billion. According to analysis by the Centre for Economics and Business Research, the upper estimate this could lead to a fiscal surplus of £139 million per year, generated by higher consumption and increased housing market activity estimated at an additional 37,000 property transactions per year.
The research does however acknowledge that the estimated surplus would increase as the threshold is lowered; for example, if the threshold was lowered to £450,000, the net increase in tax revenues could rise to £247 million if the threshold was lowered to £450,000, and £491 million per year with a £300,000 threshold.
The projections also suggest that a permanent increase in the Stamp Duty threshold could result in an average increase in future house prices of 1.3%, which could generate £256 million in additional transactional tax revenues each year. An increase in aggregate property wealth would also result in an increase in the number of transactions in which sellers are liable for Capital Gains Tax, which could also rise by approximately £505 million each year.
The CEO of Kensington Mortgages has responded to the research stating: “This research demonstrates what we all intuitively know – that the stamp duty holiday has been very positive for the economy at a critical time. The threshold level should be considered ripe for permanent reform. The upper bound estimates of our analysis suggest that the Treasury could have its cake and eat it, achieving a fiscal surplus whilst boosting the economy.”
The analysis also shows that the increase in house prices would lead to an increase in households’ collective net wealth, driving an estimated 0.36% – 0.75% increase in household consumption, with additional tax revenue coming from increased spending associated with property ownership.
As matters stand, the decision to increase the Stamp Duty Land Tax threshold permanently from £125,000 sits with the Government alone but there is clearly a strong economic argument to do so.
If you are looking to buy or sell a property in 2021, Farleys’ residential property team can help. Contact us on 0845 287 0939 or submit your enquiry online.