He says total suspension would cost less than £2bn per annum.
Although the Chancellor has indicated that there will be no further major fiscal stimulus in the budget on April 22, John Charcol is calling on him to temporarily take the axe to Stamp Duty land tax on residential property, a move that would cost relatively little but would provide a lot of ‘bang for buck’ in the current environment it says.
John Charcol says revenue from Stamp Duty has collapsed in light of the approximate 60% drop in property transactions and 25% drop in prices.
The latter causes revenue to fall by well over 25% because it takes some properties out of the net completely and moves many from the 3% tax band down to the 1% band and others from the 4% band to the 3% rate.
As a result John Charcol estimates that the current run rate of revenue from stamp duty land tax is now well below £2bn p.a. and so forgoing this would only cost about one sixth of the cost of the one year VAT cut, which is generally recognised as having been ineffective in stimulating sales.
Boulger, says: “The housing market is a critical component of the UK economy, with its health going far beyond just affecting the employment prospects of those who work in the sector.
“Because such a high proportion of bank and building society lending is secured against property, any improvement in the housing market, even just stabilisation, would have a marked effect on banks and building society balance sheets.
“It would at least reduce, and possibly avoid, the need for significant further provisions and in due course should even allow some write backs on provisions already made. Therefore in order to stimulate the market we are suggesting the temporary suspension of all stamp duty land tax on residential property for an unspecified period.”
Boulger says there are two reasons behind the suggestion that this suspension should be for an unspecified period.
Firstly, prospective purchasers could not risk delaying too long on the basis that they had, say, a year, in which to buy without paying Stamp Duty and secondly, the Chancellor of the day would have discretion as to when to reinstate the tax and could therefore fine-tune this with an up-to-date view of the state of the market.
This would also provide an ideal opportunity to make the tax fairer when it was re-introduced by avoiding the sudden jump in its cost at the threshold levels.
Boulger adds: “There are signs of confidence returning to the property market but the lack of mortgage finance is a major constraining factor. Borrowing the extra required to finance 3% or 4% Stamp Duty was easy until the credit crunch, but can now be difficult with the much lower maximum loan to values in today’s market.
“Even if a borrower is able to extend their loan to cover the cost of stamp duty, being pushed into the next loan to value mortgage band will increase the cost of the whole loan, possibly substantially. Thus in the current market the 3% and 4% stamp duty rates are an even bigger barrier to purchase than the 1% rate.”