Abolishing SDLT Is Not A Cure-all For Our Complex Property Problems

From Angela Rayner's career-undoing underpayment, to Kemi Badenoch's recent announcement that a Tory government would abolish the tax entirely, stamp duty land tax has been much in the news recently.

It is certainly a headline-grabbing statement, but what effect would the removal of SDLT have on the housing market — and on HMRC's receipts?

Complexity and confusion

The current SDLT regime is unsatisfactorily complex and confusing, to the detriment of housebuyers, their advisers and doubtless often HMRC. Ostensibly, the tax is perfectly simple: if you buy a house, you are liable to SDLT. But since its introduction by the Finance Act 2003, there has been near-endless tinkering, tweaking and amendment of the tax and its reliefs.

If you are a first-time buyer, you might be eligible for relief; but not if the flat you are buying to is too expensive. If you are buying a second home, your liability will increase; but will be different again if you are not a UK resident.

It is hardly surprising that housebuyers are often bewildered by the complexity of the requirement, and it is hard to believe that prominent politicians are the only ones getting their numbers wrong when it comes to paying up.

A trial run?

Anyone who moved house amid the chaos of the Covid-19 lockdowns will remember the government's SDLT 'holiday' — a temporary suspension of the tax, which was designed to breathe life into a totally deflated property market. This temporary tax relief prompted huge amounts of transactional activity, as well as a significant and unsustainable increase in house prices, particularly in the already overpriced South East of England.

Buyers realised that they could increase their offers by the amount that they would otherwise have budgeted for SDLT — potentially a difference of tens, if not hundreds, of thousands of pounds.

The bubble that this created was always going to burst, and the housing market is still struggling to adjust to today's buyers' more realistic price expectations.

It seems impossible that the wholesale removal of SDLT wouldn't prompt a similar increase in house prices in those parts of the country that are already most unaffordable; to say nothing of the significant dent to HMRC's coffers.

The alternative

SDLT receipts for the financial year ending 2024 were around £12bn, according to the government's own figures. For any government that seriously intends to reform property taxes, the question of how to plug that gap is surely a pressing one.

Any capital gains style tax on sale would surely be fatally unpopular, and would have the biggest impact on older voters who bought for a song decades ago and now find themselves living in houses worth millions. Any new 'house value' tax along the lines of council tax would also be likely to meet with similar popular opposition among a vocal and influential demographic of voter.

Tory announcements about removing the tax entirely are a blunt solution to a problem that is more complex than the headlines allow.

It is no secret that there is a crisis in housing supply at almost every level in this country: not enough affordable first-time-buyer houses and flats; not enough family-sized houses for people to move into after that; and a huge number of older couples or single people living in houses that comfortably accommodated children who have long since flown the nest.

A more nuanced solution to the SDLT problem might be to offer those older potential downsizers a one-off relief on the purchase of a smaller house. For many, the combination of upheaval and expense (including significant SDLT on even a much smaller property in the same area) is enough to make downsizing feel unappealing and unachievable.

If an SDLT relief could be used to create movement at the top of the housing ladder, the benefits would likely be felt throughout the wider market.

Next steps

It remains to be seen whether all the SDLT sound and fury from the Tories will prompt anything concrete in Rachel Reeve's upcoming Budget. Dramatic tax cuts might win temporary favour with voters across the political spectrum, but the knock-on effects of housing tax are real and long lasting.

It is to be hoped that any reform of SDLT is considered in the round, and implemented in a way that actually helps the housing market and people trying to move, rather than just providing an attention-grabbing soundbite.

Originally published by FT Adviser.

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