Stamp duty holiday
Prolonging the stamp duty holiday stands as a potentially advantageous fiscal manoeuvre for the UK treasury, as revealed by a study commissioned by Kensington Mortgages. Sustaining the existing Stamp Duty Land Tax (SDLT) threshold at £500,000 could usher in newfound tax revenues.
This influx would result from heightened transaction volumes, escalating property prices, increased household consumption, and heightened activity in the housing market, yielding a financial boon ranging from £2.3 to £4.1 billion. An analysis conducted by the Centre for Economics and Business Research (Cebr) posits that this approach could result in a fiscal surplus reaching £139 million in the upper estimate.
The fiscal surplus, however, demonstrates an upward trajectory as the SDLT threshold is lowered. Should the threshold be adjusted to £450,000, the potential net increase in tax revenues could ascend to £247 million. A more substantial reduction to £300,000 might yield an impressive surplus of £491 million annually.
The stamp duty holiday, instituted in July 2020 for properties under £500,000, encompassing nearly 90% of transactions in England and Northern Ireland, is slated to conclude on March 31, 2021. The research underscores that extending or making permanent this tax relief initiative could usher in substantial socio-economic advantages for the UK, transcending its current temporary nature.
Mark Arnold, CEO of Kensington Mortgages, comments:
“This research demonstrates what we all intuitively know – that the stamp duty holiday has been very positive for the economy at a critical time. The threshold level should be considered ripe for permanent reform. The upper bound estimates of our analysis suggest that the Treasury could have its cake and eat it, achieving a fiscal surplus whilst boosting the economy. It could unlock housing market activity and pay for 4,000 additional nurses in one fell swoop*.
“Furthermore, aside from updating the threshold to reflect real-world house prices, the maintenance of the £500,000 threshold could address some structural problems with the UK housing market. It could lead to greater regional mobility – with ancillary trickle-down benefits – and stimulate more downsizing, freeing up family homes and helping to address this vital stock shortage. We believe now is the time to be bold and keep the threshold at its current position, or at least consider amending it to a higher level than the previous £125,000.”
While the findings reveal that a permanent extension of the current SDLT, land and buildings (LBTT) and land transaction tax (LTT) holidays could cost the UK Treasury £3.9 billion per year, the below table summarises how it could recuperate between £2.3bn and £4.1bn. Stamp Duty Holiday
Property transactions, collective wealth and household consumption will increase.
Estimates from the Cebr suggest that the reduction in the rate of stamp duty would lead to 37,000 additional property transactions taking place each year, generating £266 million in annual revenues.
Future house prices could also be, on average, 1.3% higher. Moreover, the structure of SDLT means that the increase could be greater for higher-value properties, leading to a 1.9% increase in households’ collective property wealth. Higher property values could lead to SDLT, LBTT, and LTT receipts generating £256 million in additional revenues each year. Higher property values and transaction numbers could generate £523 million of annual revenues to the Treasury. Stamp Duty Holiday
With a significant share of households’ wealth contained within the property, housing price movements have a major effect on total levels of wealth in the UK. The analysis shows that the increase in house prices would lead to a £113 billion increase in households’ collective net wealth, driving an estimated 0.36% – 0.75% increase in household consumption. Stamp Duty Holiday explained.
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 the value of 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.
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