Since July last year, the Stamp Duty holiday has given a much-needed boost to the UK property market. But, with the tax break set to end on 31 March, the chancellor is coming under increasing pressure to extend the holiday, and perhaps even to announce more widespread reforms to the way the government taxes property.
Tom Clougherty of the Centre for Policy Studies says: “The best thing to do with a tax as economically damaging and socially destructive as Stamp Duty is simply to abolish it – ideally alongside a long-overdue reform of Council Tax.”
So, could the chancellor extend the Stamp Duty holiday? And could sweeping Council Tax reforms also be on the agenda?
Chancellor set to resist calls to extend Stamp Duty holiday, despite risks to ongoing transactions
Since Rishi Sunak announced the tax break in July, a cut on Stamp Duty has provided a huge boost to the UK housing market. As the map below shows, many areas saw a significant increase in agreed sales between 8 July 2020 and 7 January 2021 compared to the same period the previous year.
In some areas of the South East, agreed property sales were more than 60% higher after the announcement of the Stamp Duty holiday then they were the year before.
However, with the holiday set to end on 31 March, experts have warned that many transactions simply won’t complete by this date, leaving buyers with a potential tax bill of up to £15,000.
Property website Rightmove say that around 100,000 of the 613,000 home sales currently in the pipeline could be hit with an extra tax of as much as £15,000 because delays processing transactions could push them beyond the end of March deadline.
“There may be difficulties if they have factored the tax savings into their budget calculations,” said Tim Bannister at Rightmove.
“The challenge of processing so many transactions in less than three months is made even tougher by the new lockdown restrictions, Covid-19 sickness and home-schooling further reducing capacity in conveyancing, legal searches and mortgage lending.”
Some MPs have even gone further and called for the chancellor to abolish Stamp Duty altogether.
Conservative MP, Kevin Hollinrake, believes that Council Tax and Stamp Duty should be replaced with ‘a Proportional Property Tax (PPT) which would tax all homes at the same rate based on up-to-date property values.’
He says: “These taxes are unfair, complicated and block aspiration. Unfair because the poorest find themselves hit hardest. Complicated because they are difficult to understand and command an intricate web of bureaucracy to administer.
“And they hinder aspiration by taxing property transactions and discouraging people from moving home.”
While the Stamp Duty holiday boosted the housing market, it also cost taxpayers an estimated £3.3 billion. For this reason, and because, according to a Treasury spokesperson, ‘its time-limited nature is what has encouraged people to take advantage of the scheme,’ Rishi Sunak is said to be determined to ignore calls to prolong it.
Council Tax ‘should be a key target for reform’
A leading think tank has also called for sweeping reforms to Council Tax in the UK as a key part of the government’s ‘levelling up’ agenda.
A report from Onward for the Levelling Up Taskforce, which counts 65 ‘red wall’ MPs among its backers, found Londoners pay an average £481 per head in Council Tax. This is the lowest in England despite much higher property prices, and 20% less than households in poorer areas such as the South West and East of England.
While the group say that Council Tax should be a key target for reform, this is at odds with the chancellor’s November economic statement which gave local authorities the green light to raise the local charge by up to 5% from April.
Labour leader, Keir Starmer, urged the chancellor to think again: ‘It is absurd that during the deepest recession in 300 years, at the very time millions are worried about the future of their jobs and how they will make ends meet, Boris Johnson and Rishi Sunak are forcing local government to hike up Council Tax.”
Onward director, Will Tanner, said: “Decisions like whether to raise Council Tax, or to cut Corporation Tax as we have done for the last few years, are not regionally neutral decisions. The Treasury has probably not done enough to understand the regional consequences of its tax policies.”
Stuart Adams, a tax expert at the Institute for Fiscal Studies, said the uneven impact of Council Tax has been as a consequence of successive governments avoiding a politically contentious overhaul of the tax, which is based on house prices three decades ago.
He said: “Since 1991 house prices have grown much more quickly in London and the South East than they have in the north of England and yet the amount paid by London and the South hasn’t risen relative to the rest of the country.”
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If you want to make the most of the Stamp Duty holiday, or you have any other questions about buying property in the UK, please get in touch. Email email@example.com or call us on +44 (0) 20 3786 7270.