A 15 month temporary concession in property tax in the UK didn’t cost the government as much as it had expected and the stamp duty system should be reformed, it is claimed.
The stamp duty holiday on properties sold for between £125,000 and £175,000 as a temporary boost to the real estate market actually cost much less than the Treasury originally estimated, according to research from the Council of Mortgage Lenders.
In September 2008, when the government temporarily raised the nil rate threshold for stamp duty to £175,000, the CML estimated that this would mean the proportion of homebuyers who would not have to pay would rise from a quarter to a half.
In fact, at its peak in the first quarter of 2009, the concession benefitted even more than this, with 57% of all those buying with a mortgage not having to pay. However, modest property price increases and a shift in the mix of houses bought towards higher value properties brought this down to 51% in the third quarter of the year.
When it introduced the concession, the Treasury estimated that the cost in foregone revenue would be £615 million. At that point the concession was due to last for one year bit it was subsequently extended until the end of December 2009.
The CML research estimates a total final cost to the government of £356 million in the first 12 months, a little over half the government’s initial estimate, as a result of the low volume of property transactions over the period. Forecasting through to the end of the year when the concession ended, the CML estimates that total foregone revenue will be a little under £500 million.
The flat nature of the concession, making it the same in all regions of the country, resulted in a wide geographic variation in the effect. Those areas with generally lower house prices saw the greatest benefit, the CML report shows.
In 2008, just before the threshold was raised, the Northern and Yorkshire and Humberside regions both had the greatest proportion of exempt transactions, but in each of these regions this was still under half. A year later, with the higher threshold in place, over three quarters of transactions in the North were exempt from stamp duty.
At the other end of the scale though, London predictably saw much less benefit. Before the measure was introduced, only 2% of transactions were exempt. A year later, with the higher rate threshold in place, still only 17% of London borrowers escaped paying. London accounts for 13% of house purchase transactions, but only 6% of borrowers were helped by the stamp duty concession.
The CML said it continues to believe that a fundamental reform of stamp duty is necessary. ‘It is a tax that discourages labour mobility and its slab structure has the effect of causing transactions to bunch just under each of the tax thresholds. While abolition would be the best option, a move to a graduated structure would be an improvement on the current system, even if done on a cost-neutral basis,’ said a spokesman.
‘While the temporary concession was welcome as far as it went, it is disappointing that the government has not sought to implement this desirable reform of an anachronistic tax.’