Last week chancellor George Osborne announced a new 7% Stamp Duty band for properties worth over £2m and a 15% band for any property bought through offshore firms.
Giving evidence in front of the Treasury select committee this morning, IFS director Paul Johnson said the policy seemed “unpremeditated” adding it reinforced the case for a review of property taxation.
He says: “It increases substantially the need for reviewing the taxation of property, thinking about the structure of council tax, whether we continue to use 1991 prices, whether we continue to charge it in a way which rises much less proportionally than the value of the property and whether we want to continue with transaction tax which has an impact on how the market works.”
The Treasury says the new 7% rate will hit around 3,000 property sales a year and bring in £200m to £300m. The Office for Budget Responsibility’s economic and fiscal outlook published alongside the Budget says this estimate is “highly uncertain”. However, Johnson says he has “no basis” for doubting the Treasury’s estimated revenue.
In his Budget speech, Osborne warned he would act “without notice and retrospectively” against people seeking to avoid stamp duty. Chartered Institute of Taxation policy director John Whiting warned that there was a “genuine risk” that retrospective action could become the norm if politicians begin to use it, especially as a way of “correcting lazy legislation”.
He said retrospective action should be kept “in a very very tightly controlled box” as it risked damaging the reputation of the UK tax system and could make inward investment less likely.
He said: “It damages it because it takes away some of the reputation for stability, certainty and fairness that in many ways are the cornerstones of our system.”