Don’t stop the SDLT holiday

Caroline Fleet puts the case for extending the stamp duty land tax holiday beyond April 2021. Over the past few years, stamp duty land tax and its Welsh and Scottish counterparts (land transaction tax and land and buildings transaction tax) have increasingly become an element of most house-buyers moving budgets. Consequently, the impact of SDLT on the liquidity of the overall market has also increased, with its changing rate having the ability to either stimulate or stifle the market. The rates of SDLT have significantly increased over the past decade. If you looked back to March 2010, the top rate of residential SDLT was only 4% and there was minimal difference between the level of tax paid on residential and non-residential transactions. However, buyers in today’s market could be now looking at a top rate of 15% for residential properties. In addition, over the past decade, we have seen the introduction of new rules for residential property, including both the higher rate and the higher rates regime (3% surcharge), each of which added significant complexity to this tax. The drag factor As SDLT is by its very nature a transactional tax, it acts as a drag on the level of property transactions. The recently published statistics by the Office of National Statistics demonstrate this most clearly. The statistics showed that the provisional seasonally-adjusted estimate of UK non-residential transactions in September 2020 was 9,160, which is 6.3% lower than in September 2019 and 18.7% higher than in August 2020. The provisional seasonally adjusted estimate of UK residential transactions was 98,010 for September, which is only 0.7% lower than the number in September 2019 and 21.3% higher than August 2020 levels. Some of this overall uplift in the number of transactions will be due to the general easing of the Covid-19 lockdown conditions at the time, as people were able to complete on their house purchases, but a large element will be due to the SDLT holiday for residential property that the chancellor, Rishi Sunak, announced on 8 July 2020. This SDLT holiday means that no SDLT is currently payable by individuals who purchase a residential property for less than £500,000, as long as they own no other residential property and that transaction is completed in the period between 8 July 2020 and 31 March 2021. Also, due to the mechanics of the SDLT holiday, the temporary reduction in rate does not just benefit individuals purchasing their home, but also benefits companies and purchasers who pay the 3% surcharge, thereby helping to open the residential market for all. This holiday provides a clear incentive to all purchasers in the residential market to complete on their residential transactions prior to 31 March 2021. The upturn in September suggests that buyers are already looking to capitalise and secure that benefit. At the moment, this SDLT holiday has an end date of 31 March 2021, which will create a hard cliff-edge for purchasers to have completed their transactions prior to this date. Coupled with this, HM Revenue & Customs is currently proposing that the additional 2% surcharge that applies to non-resident purchasers be implemented from 1 April 2021. The combination of these two changes could mean the difference of £20,000 between completing on 31 March 2021 and completing on 1 April 2021 – a significant dent in anyone’s budget. What lies ahead? Such a differential will therefore significantly impact the number of transactions that take place post-April 2021. We should expect the fallout from this SDLT rate change to be far greater than the drop in sales volumes that took place when the 3% surcharge was introduced in April 2016. For purchasers who are perhaps still undecided about whether to hold out against buying a new residential property, because of the potential drop in house prices if unemployment rises, mortgages may become more difficult to obtain. If a significant recession takes a grip, they may well miss out on the SDLT holiday or, more likely, there will be a last-minute spike as buyers scramble to complete on transactions in the first quarter next year. Given the current fragile state of the overall economy and the property industry as a whole, this SDLT holiday does not feel long enough to provide sufficient longer-term stimulation and support that the industry desperately needs in order to bring liquidity back into the market. With England entering another lockdown, this is will inevitably slow the housing market down again and there will be insufficient time before the proposed end of the SDLT holiday for people to adjust to how a post-Covid world will impact their housing requirements. This nine-month savings window will also not be enough to give real confidence to housebuilders considering their next development. The property industry needs to have a longer-term horizon for this holiday, to ensure that the effect of the SDLT holiday is a truly ongoing stimulation in the delivery of the housing market, and far more than a quick spike in activity followed by a nosedive. Client concerns Time and again, our clients in the property and construction industry have highlighted to us the damaging impact that the high level of SDLT has had on the market. Obviously, it is only one small element of the complexity in delivering real estate, but it is one element that can be quickly changed by the government and one to which the market can also quickly adjust to. To us, the solution is clear. As an immediate priority, the SDLT holiday for residential properties over £500,000 should be extended beyond March 2021, while the ongoing rates of SDLT should also be reduced. From a more fundamental policy perspective, the overall complexity of the tax, with all the various rates, should be cut back to further assist and ensure that the SDLT holiday has a true, long-term benefit and open the residential property market back up.   Caroline Fleet is a tax partner at national audit, tax, advisory and risk firm Crowe Photo by Jeff Blackler/Shutterstock