The Impact of Extending the Stamp Duty Holiday on the UK Mortgage Market
A recent study by Kensington Mortgages reveals that extending the stamp duty holiday could significantly benefit the UK economy. Maintaining the Stamp Duty Land Tax (SDLT) threshold of £500,000 may increase tax revenues.
This potential growth stems from several factors, including higher property transactions, rising house prices, and greater household spending. Furthermore, heightened activity in the housing market could generate between £2.3 billion and £4.1 billion in economic benefits. According to the Centre for Economics and Business Research (CEBR), this could create a fiscal surplus of up to £139 million.
Interestingly, the surplus grows when the SDLT threshold is reduced. For instance, lowering the threshold to £450,000 might result in an additional £247 million in tax revenues. A more significant reduction to £300,000 could generate an annual surplus of £491 million, further strengthening public finances.
The stamp duty holiday, introduced in July 2020, applies to properties valued at £500,000 or less. This accounts for nearly 90% of property transactions across England and Northern Ireland. However, the initiative is set to expire on 31 March 2021. The research emphasises that extending this relief—or even making it permanent—could bring substantial socio-economic advantages.
This policy could enhance government revenues by stimulating the property market while supporting households and businesses. As the deadline approaches, discussions on the future of this tax relief continue to gain importance.
Mark Arnold, CEO of Kensington Mortgages, comments:
“This research shows the stamp duty holiday’s positive impact on the economy during a crucial time. The threshold level appears ready for permanent reform. Upper bound estimates suggest the Treasury could benefit fiscally while boosting the economy. It might unlock housing market activity and fund 4,000 additional nurses simultaneously.
Furthermore, updating the threshold to reflect real-world house prices could solve structural issues in the UK housing market. Maintaining the £500,000 threshold could enhance regional mobility with trickle-down benefits. It could also stimulate downsizing, freeing family homes and addressing the stock shortage. Now is the time to be bold. We should keep the threshold or consider raising it above £125,000.
The findings show that extending the current SDLT, LBTT, and LTT holidays could cost the UK Treasury £3.9 billion annually. However, the table below summarises potential recuperation between £2.3bn and £4.1bn.
In conclusion, the stamp duty holiday has proven beneficial. Reforming the threshold could continue to drive economic growth and address housing market issues. The potential fiscal benefits should encourage policymakers to consider permanent changes.”
Property transactions, collective wealth and household consumption will increase.
Estimates from the CEBR suggest reducing stamp duty would result in 37,000 more property transactions yearly. This increase could generate £266 million in annual revenues.
Influence on House Prices
Future house prices could rise by an average of 1.3%. Moreover, the structure of SDLT implies a greater increase in higher-value properties. Consequently, this could lead to a 1.9% rise in households’ collective property wealth. Higher property values could boost SDLT, LBTT, and LTT receipts by £256 million annually.
Increased Revenues to the Treasury
Higher property values and transaction numbers could generate £523 million in annual revenues for the Treasury. With a significant share of households’ wealth tied to property, housing price movements greatly affect total wealth levels in the UK.
Economic Impact
The analysis shows that a rise in house prices would lead to a £113 billion increase in households’ collective net wealth. This wealth increase could drive a 0.36% to 0.75% rise in household consumption. The Stamp Duty Holiday plays a crucial role in this scenario.
Indirect fiscal impacts on capital gains tax
As per HMRC reports for the fiscal year 2017-2018, residential property transactions subject to capital gains tax (CGT) accounted for a substantial £26.6 billion. The incremental surge of 1.9% in overall property wealth suggests a potential annual escalation of about £505 million in residential property transactions where CGT is applicable.
This data underscores a notable trend in the housing market, indicating a consistent growth trajectory in CGT-eligible property transactions. The figures reflect the increasing monetary dynamics within this sector and point towards a broader economic landscape where residential property transactions subject to CGT could experience a continuous uptick, contributing to the overall fiscal momentum.
Thank you for reading our publication “Stamp Duty Holiday | £139M A Year Tax Boost For Treasury.” Stay “Connect“-ed for more updates soon!
