Posted by Angus Williams, Partner
Will super sub Sunak stamp down on property tax rates?
After only 27 days in the role, Chancellor of the Exchequer, Rishi Sunak is ready to reveal his first ever budget, the UK’s first in over 18 months and first as a Non-EU member state in over 40 years. Although no one can be certain what will be inside the famous red box, from the Prime Minister and Chancellor’s comments within the last few months, it is likely we will see Stamp Duty Land Tax (SDLT) take the stage in some way.
Boris Johnson’s resounding victory in the general election has given the Conservative Party the freedom to, if they want, radically reform SDLT. The now Prime Minster has explicitly mentioned that he believes stamp duty is currently “absurdly high’ which raised speculation that the Chancellor could raise the threshold to £500,000, and to cutting the top rate to 7%.
This would in theory give the property market a new lease of life; buyers of properties under half a million will be able to move up the property ladder without the friction of taxation, with savings of nearly £15,000 per transaction for those purchasing at the top end. High value homes above £1.5m will save considerable amounts and should get the top end of the market moving again, which will pull the lower end of the market up with it. However, without an increase in the supply of houses the increase in demand will likely cause prices to rise, putting many purchasers back to square one. Perhaps keeping the SDLT rates the same and using those funds to provide incentives to build more properties is a better solution.
The lack of news on these plans recently seem to suggest the idea has been benched for now, it is likely the Chancellor is not confident these changes will stimulate enough market activity in the current economic climate to offset the initial loss in tax revenue and therefore the chancellor may play it safe and stick to safer tax revenue boosting policies.
Over the past few weeks, overseas buyers of UK property have been in a frantic haste to get the deal over the line before today, amidst fears of being stung by an additional 3% surcharge. The initiative to impose an additional levy of 3% on the purchase of homes by non-UK tax residents is likely to be confirmed by Sunak in his budget and projected to raise £120m a year; with it supposedly going into programmes to help tackle rough sleeping on the streets of the United Kingdom. In very much Brexiteer fashion, the increased SDLT will both dissuade some foreign investment so that there is more stock for British residents and domestic investors, but and at the same time, generate some much-needed tax revenue. The government must also bear in mind whether imposing the additional levy on non-UK EU tax residents is compatible with non-discrimination provisions within EU law, otherwise the effectiveness may be delayed until the end of 2020, the end of the EU withdrawal agreement transition period.
Although the 3% SDLT surcharge for non-UK tax residents proposes an extremely appealing ideology, is that what the UK needs right now? Foreign investment will be vital over the coming years to help boost the economy; with this turbulent political time and recent outbreak of coronavirus having sever negative effects on global economies, perhaps it would be better for the chancellor to put the idea on ice until the global economy stabilises, or at least cool it down to the originally proposed 1%.
In the current political and economic climate, it is unlikely the red box will contain the radical changes that some people have been waiting for, at least not this year. But watch this space, it is clear Boris Johnson will not be scared to push for big and exciting changes in SDLT during his tenure.
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