As noted in prior articles discussing the issue that the stamp duty hike has caused problems in the property market, but this week in the Telegraph, there has been a report that the stamp duty rise may push the property market over the edge. George Osborne’s rise in the stamp duty was announced in 2014, affecting residential properties. It may have been seen as a move to cool off the market whilst tapping into a new source of tax revenue.
However, Land Registry data provided by Savills shows that in the first eight months of 2015 there was a drop of 18% in receipts against 2014, which means the Exchequer will receive £810 million less from stamp duty last year. Another consequence of the rise in stamp duty is the implications for the development of new homes at the lower end of the market. The article in the Telegraph goes onto mention that we have kept our head above water when it came to the deluge of changes set out by the government, including the introduction of an ”annual tax on developed dwellings”, offshore capital gains tax, clamp downs on corporate vehicles buying property and the removal of the Buy-To-Let relief.
Rises in stamp duty threaten to tip the property market over the edge. The principle underpinning UK home-ownership is that you do not have to pay tax on the gains on your primary residence over the long term. However, with the new stamp duty changes, this principle changes. Due to these changes, the London market has cooled considerably between £5 million and £10 million, less between £2.5 million and £5 million, and is continuing to hold its own – but with reduced volume – in the £1.5 million to £2.5 million bracket. This may have been the Chancellor’s aim all along, but he may not have anticipated the consequences. The hike was designed to harvest more tax from more wealthy property owners, but it had the downside of limiting the supply of affordable homes for those with lower incomes. A higher stamp duty is choking off the supply of affordable housing, with the result that fewer homes are being built.
The article states that the Chancellor made an error in raising the stamp duty to the current levels on residential property, where he reduced the national tax take and triggered off a chain reaction that George Osborne himself could not have expected. We will have to wait and see if he has any plans to rectify this and focus on setting the property market straight.
In the meantime, the Chancellor has to rekindle the industry’s commitment to new-build housing by improving the potential returns and supporting the market, the Telegraph claims. It concludes by calling for George Osborne to alleviate the stamp duty rise. Whether he does so or not, the property market might take a long time to recover.