Autumn Budget: Survey reveals industry appetite for stamp duty reform

Stamp duty land tax reform sits at the top of the real estate industry’s wish list for the upcoming budget, a Smith & Williamson survey has revealed.

More than two out of three respondents to our poll of surveyors, investors, developers and other construction professionals said reversing the 3% surcharge on second homes and buy-to-let properties should be a key priority for the Chancellor ahead of his Autumn Budget.

The property wish list

Stamp duty land tax (SDLT) relief for downsizing homeowners and a reduced VAT rate for repairs and maintenance on residential buildings also emerged as key issues for the sector.

The 3% stamp duty surcharge has had a dramatic impact on the housing market since it was introduced in April 2016, with the aim of reducing demand among second home buyers and buy-to-let investors.

However, the extent to which this aim has been achieved is questionable, with little evidence that the surcharge has dampened appetite among investors. Instead, they have had a negative effect on some housing associations and other property developers - some of whom are reported to have been paying stamp duty on behalf of buyers, an unsustainable practice in the long term.

The surcharge has also taken a toll on the prime London residential market, where prices have stalled. While this may have been one of intentions behind the charge, it seems unlikely that the government was aiming solely to make £1m+ homes more affordable.

Will the government consider reversing stamp duty reforms?

Meanwhile, in other market sub-sectors, prices have continued to rise, and the stamp duty surcharge has become a significant money spinner for the Treasury.

By the end of Q3 2017, around £2.6bn had been collected since the surcharge was implemented in 2016, with only around £200m of refunds - which are available in cases where the second home surcharge is paid and a main residence is subsequently sold. The prospect of losing such a lucrative source of revenue suggests abolition of the surcharge remains an unlikely scenario.

However, the survey revealed the property sector would also welcome other changes to the stamp duty regime.

There have been anecdotal reports that stamp duty costs may be deterring homeowners from downsizing. Spiralling residential prices mean downsized properties could easily be worth more than £1m, which could generate stamp duty costs of in excess of £40,000.

45% of respondents said stamp duty relief for buyers downsizing should be a priority. There may well be merit in the government adopting such a policy. If implemented, this should be kept under close review to ensure this relief has the desired effect.

Lower VAT rate for repairs

The survey also revealed support for measures such as offering a reduced rate of VAT for repairs and maintenance work to all residential properties, with more than 40 per cent of respondents ranking it as a key priority.

Support for this proposal may have been driven by the scrapping of the ‘wear and tear allowance’, which allowed buy-to-let landlords to deduct 10% of rental income from their profits to cover maintenance costs. Instead, landlords must now reclaim the actual cost of expenses, making VAT charges a more important consideration.

One in three respondents said they would also welcome an extension of the Enterprise Investment Scheme and Venture Capital Trust tax relief for residential development. Relief is currently restricted to trading companies, excluding many real estate investors. Extending tax relief to investment in residential development could incentivise developers to help meet the government’s ambitious house building targets.

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.