The “Stamp out stamp duty” campaign has increased in noise recently there is an increasing perception that stamp duty is a flawed tax.
It can create market distortions, hamper efficient use of the existing housing stock and add up-front cost to home-ownership. It is the ying to the Help to Buy yang, which attempts to help buyers afford a mortgage with a limited deposit, and this conflict should not go unnoticed by the Government. This paradox reinforces the need for consideration of reform.
Better use of existing housing stock will define how government housing policy is judged over the next few years – just as much as whether there is an increase in new build. Stamp duty, by discouraging transactions, is an obstacle to improved use as it supports inefficient use of existing housing and therefore worsens the problems caused by the shortage of supply.
More than three-quarters of revenue from stamp duty now comes from higher rate bands. Some stamp duty liabilities look sufficient to discourage buying and selling, regardless of contracting accommodation needs (for example, in old age). Indeed, the introduction of higher rate bands and an increase in property transactions have meant a rise in government revenue, even if transactions are 600,000 fewer than the 2007/08 peak.
Regional differences are also problematic as buyers in the South-east pay a higher proportion. Almost half of first-time buyers in London now pay at least 3 per cent stamp duty rate – up from just over a quarter in 2006-07.
The CML have long advocated fundamental reform of how residential stamp duty operates, and in particular the removal of the slab structure. We favour a marginal rate system similar to income tax. There are significant benefits although it is difficult to deliver without consequences on government revenue. We acknowledge that this could be a significant barrier to reform.
We welcome the announcement of changes in Scotland and Wales in the next few years but this accounts for only 6 per cent of those transactions across the UK which are subject to tax so the modest effect of the reform must be taken into account.
If the government is serious about a stable mortgage market then a wider scale reform will be needed to avoid a long-term paradox that we have a market which makes it easier for housing transactions through Help to Buy but deters them at the same time through rising stamp duty costs.