Despite recent progress in the state of the UK property market, research by Walbrook Economics has indicated that if the Government was brave enough to reduce or even remove Stamp Duty Land Tax, the Government would not actually lose any revenue.
This is due to the fact that if Stamp Duty were removed, the benefits would stimulate house buying, creating more jobs, more expenditure and more investment. As a consequence, the amount received from income tax, national insurance and vat would rise – offsetting the loss in revenue from stamp duty itself.
The theory relates closely to the popular ‘Laffer Curve’ – which is an economic theorem created by Arthur Laffer, an advisor to President Reagan at the time, that summarises tax as a general principle; showing that reducing a tax burden frequently increases tax revenue by stimulating activity enough to offset the balance.
The Stamp Duty Land Tax therefore is seen to suppress market activity; ie. consumer demand. As much of the rest of the industry operates on the basis of ‘derived demand’, other aspects of the property market, like house building and investment, suffer with reduced projections and yields.
More than a million jobs are dependant on the “housing market”, but how many more persons would be employed directly and indirectly with an increase in demand and therefore an increase in activity if this demand were not artificially constrained?
Matthew Sinclair of the Taxpayers’ Alliance stated:
“Stamp Duty is an unfair double tax that stops young people buying a home and starting a family, discourages elderly people from downsizing and makes it harder to move to new places for new jobs. The Government could cut Stamp Duty with a limited impact on the amount of money going into the Treasury’s coffers, as lower taxes would encourage more people to move and therefore increase the number of transactions being taxed.
“Politicians should seize this golden opportunity to reduce the burden and make things easier for the hundreds of thousands of people looking to buy or sell a home each year.”
The HomeOwners Alliance points out that Stamp Duty has risen 7.1 times faster than inflation, 6.5 times faster than average earnings and 4.6 times faster than house prices since 1995/6.
Experts indicate that the removal of stamp duty land tax could easily be brought in or be given a nil rate for homes under half a million pounds, thereby assisting the middle and lower ends of the market in order to assess the consequences. It could also be brought back again, if required. It is worth noting that no longer is there relief from Stamp Duty in disadvantaged areas or for first-time-buyers.
Certain special designated areas and sales are still exempt from Stamp Duty Land Tax though. These include:
– Chain breaking Purchases.
– Property purchased under the Right to Buy
– Multiple Property Purchases which can in some instances be aggregated.
With much call for a so called ‘mansion tax’, public sentiment may in time persuade the Government that the current policy is economically and socially restrictive and no longer the best course of action for the modern market.
SJ / LCB 19/08/2013