What next after the Stamp Duty holiday ends?
The Stamp Duty Land Tax (SDLT) holiday which began on 8th July 2020 ends on 31st March 2021, so what will happen next?
The SDLT holiday was introduced in order to be a “temporary relief to stimulate market activity and support jobs that rely on the property market”. It did this by raising the threshold where SDLT becomes payable from £125,000 to £500,000.
Although it is too soon to see the full impact of the SDLT holiday on the property market, in the short-term there has definitely been an increase in the number of property transactions.
Now we’re moving towards the end of the SDLT holiday, Residential Property Partner, Alison Treble looks ahead at a few options the government may consider in order to continue to stimulate the market, or even provide for a more wholesale reform of the means by which property is taxed.
Extend the SDLT holiday
Buyers are understandably cautious in the current climate and there are calls for the SDLT to be extended past March. The full economic impact of the pandemic is yet to be seen, and with large parts of the economy still being supported by the government furlough scheme, there is real concern that demand will fall due to a lack of appetite to risk moving when the holiday ends.
Extend the SDLT holiday for those who have started the process
There is obviously concern that already agreed transactions which do not complete by 31st March 2021 may fall apart, with people being unable to afford, or unwilling to pay the increased SDLT payments levied after this date. This could have a knock-on effect, particularly for transactions caught up in a chain. For those already in the process a guarantee that they will still benefit from the SDLT holiday would reduce the chance of transactions falling through where the end date of the SDLT holiday is missed.
Taper the relief over a period of months
A tapered end to the SDLT holiday has been proposed to give people the incentive and confidence to continue to move and help the property market weather this uncertain period and avoid the March 31st cliff edge.
End on the 31st March
SDLT is an important source of revenue for the government raising several billion pounds each year and so we cannot rely on the holiday being extended and must prepare for the holiday to end on the 31st of March.
Longer Term change
Many argue that both the SDLT and Council tax should be scrapped and replaced with a proportional property tax. The movement currently being spearheaded by the “Fairer Share” campaign wants to replace both SDLT and Council tax with a tax where property owners pay an annual tax of 0.48% of their property value.
Supporters of a proportional property tax argue that SDLT discourages people from moving and makes home ownership less attainable by increasing the costs associated with purchasing property.
Council tax on the other hand, is seen as outdated and unfair. The campaign states that proportional property tax would remove the need to pay SDLT when buying property, therefore providing the benefits we’ve seen from the SDLT holiday on a permanent basis.
There are obviously those who are critical of the policy stating it is a form of “wealth tax”, which creates an anti-aspirational sentiment. Those opposed state it will adversely affect those who are asset rich and cash poor or those who have moved to an area which has since seen a substantial increase in property prices. An increase could put an unreasonable strain on their finances and could force them to move to a less valuable property.
With over 100,000 signatures in support of the Fairer Share campaign we should see a parliamentary debate on the topic in due course. Although we do not know the governments take on a proportional property tax, and it remains to be seen as to whether or not the government will change their position to support a SDLT holiday extension, there is certainly a lot to be aware of moving forward.
Keep the threshold at £500,000 permanently
Longer term there is the option for the government to keep the threshold at £500,000 rather than reduce it back to £125,000 after March 31st. This would enable the government to continue to raise some tax from house moves but allow many to move house without the extra expense of the SDLT.
With a budget coming up on the 3rd of March it is unlikely that any decisions will be made until after that. If you are thinking of moving this year please get in touch with our residential property team 01225 750000 or email enquiries@mogersdrewett.com.