Stamp duty has become the UK government’s “fiscal weapon of choice” in the housing market but calls for a full-scale overhaul of the property tax are growing as new surcharges and reliefs spark criticism of an increasingly unwieldy regime.


1st January 1970


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Calls grow louder for full-scale overhaul of UK property tax

Stamp duty has been fiscal weapon but whole regime deemed too complicated

By James Pickford

Stamp duty has become the UK government’s “fiscal weapon of choice” in the housing market but calls for a full-scale overhaul of the property tax are growing as new surcharges and reliefs spark criticism of an increasingly unwieldy regime.

The charge, paid by buyers on property purchases above £125,000, has been subject to a string of tweaks and accretions in the past six years, as ministers have used it to favour some purchasers, such as first-time buyers, with reliefs and discourage others, such as buy-to-let landlords, with extra rates.

The next group set to find itself paying more is non-UK-resident buyers, after Whitehall officials told the FT this week that a stamp duty surcharge of up to 3 percentage points on overseas purchasers of UK property was expected to be included in the Budget on March 11. Receipts from the additional tax are to be used to tackle rough sleeping.

The measure comes after a 3 per cent surcharge was introduced in 2016 for those buying second and buy-to-let homes, in a move aimed at dousing activity among landlord investors. If the new surcharge on non-residents is confirmed at levels close to 3 per cent, overseas buyers who already own a home could end up paying up to 18 per cent in stamp duty on the portion of the purchase price over £1.5m.

Camilla Dell, managing partner of buying agent Black Brick, said the 2016 surcharge, particularly for those whose house sale falls through leaving them with two properties, had created new administrative difficulties. “The whole property tax regime has just become too complicated. It’s a headache,” she said.

The latest fiscal salvo targeting overseas buyers sent a curious message under a post-Brexit government with bold international ambitions, she added. “I don’t believe foreign buyers are the root cause of problems in the housing market. I think they’re an easy target for the government because they don’t vote.”

In the 2017 Budget, then chancellor Philip Hammond unveiled stamp duty relief for first-time buyers of homes worth less than £500,000. This followed another major change in 2014 — one broadly welcomed by the market — when his predecessor George Osborne did away with the old “slab” system of stamp duty, under which a single rate was charged on the entire value of the property.

It was replaced with a “slice” arrangement where higher rates only apply to the portion of the value above certain thresholds.

Even so, the “bolt-on” approach to stamp duty changes has drawn many detractors, far beyond the estate agents who habitually complain of its chilling effects on sentiment. Transaction taxes are anathema to economists and housing market experts who say they benefit those who stay put and penalise those who move. Neal Hudson, director at housing market research firm Residential Analysts, said: “It’s a stupid tax and not how you would go about taxing property if you were to start from scratch.”

The Institute for Fiscal Studies, a think-tank, has described it as a “dysfunctional” tax and has urged Rishi Sunak, chancellor, to reform council tax to increase charges on more valuable properties. The valuations on which council tax is based have not been updated since 1991.

The Royal Institution of Chartered Surveyors argues that the changes since 2014 have helped first time buyers but deterred existing homeowners from considering a move. “We therefore believe government should establish a review to address all fiscal measures which impact housing supply, the taxation of homeowners and landlords, and encourages innovation and improved infrastructure,” it said.

Even Sajid Javid, who resigned last month as chancellor, has spoken out against the current state of stamp duty, telling the Times last weekend that it was “too high”, “very distortive” and “needs significant change”.

But the political appeal of a root-and-branch overhaul is unclear, particularly when the government is absorbed in managing the coronavirus crisis. Stamp duty has become an increasingly important source of tax revenue in recent years, generating £8.37bn in tax receipts in 2018-19, according to provisional government figures. Much of this is accounted for by sales of homes in London and the south-east. Transactions in these two regions brought in £5.07bn, 61 per cent of the total for England and Northern Ireland.

In light of prime minister Boris Johnson’s repeated commitment to “level up” economic inequalities between regions, the political gains from forcing through radical changes to a tax that is largely paid by wealthier groups in the south of England are questionable.

Politicians last year flirted with the idea of switching stamp duty from a tax paid by the buyer to the seller, but economists argue that such a measure would simply raise prices. Longstanding alternatives in the shape of a land tax or reform of council tax, though backed by economists, remain unpalatable for Conservative MPs mindful of their constituents’ economic interests.

When the Daily Telegraph reported last month that stamp duty cuts were under discussion in government circles, it was notable that any reductions were said to be tied to the introduction of a “mansion tax”, said Lucian Cook, residential research director at estate agent Savills.

“That gives you a fairly strong clue as to the extent to which the government are going to be protective of their tax revenues. They were looking for a means by which they could make any changes revenue neutral.”

Mr Cook concluded that the prospects of a thoroughgoing revamp of Britain’s housing transaction tax are remote. “Stamp duty has become the government’s fiscal weapon of choice as far as housing is concerned. It is probably due an overhaul. The issue is whether anyone’s got the stomach to do it when it continues to be a significant cash generator for the Treasury.”

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