Should Stamp Duty in the UK be paid by the seller or split 50/50 with the purchaser?

Stamp Duty (SDLT), first called ‘The Land Tax’, was introduced in 1692 during the reign of William & Mary and was designed to raise money to fund a war against France (if you are Euro-skeptic you may think it was a worthwhile investment!).

The slab-sided Stamp Duty Tax had various tiers from 0-5% and these levels remained for many years. At the time, under pressure from the coalition government to help reduce the Deficit in the Budget of 2012, the higher levels of the Tax were raised to 7% and 15% dependent on whether the purchase was personal or corporate. There was a lot of ‘white noise’ about international buyers escaping Stamp Duty by purchasing shares in the corporate entity that owned the property rather than purchasing the asset itself. A further ‘quasi Mansion Tax’ was also applied to corporate purchasers by way of ATED which could impose another Tax of £150,000 per annum.

Some areas of the property market still did well, despite this Tax, but at the higher end the market started to slow in 2014 not assisted by the toxic left wing rhetoric espoused by Ed Milliband’s Labour Party, the talk of Mansion Tax and the banishing of Non-Doms.

As if this were not enough of a strain on the property market the Chancellor reformed the slab sided Stamp Duty calculation formula in the Autumn Statement of 2014. He increased the Tax on personal purchases over £1.5million in value by a further whopping 5% to an eye-watering 12% level.  ……Ouch!

At the same time he reduced Stamp Duty in the lower price brackets that stimulated the property market at this level, which, frankly, was doing ‘very nicely’ anyway and this was what they call ‘in the trade’ an ‘election bribe’.

The resultant effect of this Stamp Duty ‘hike’ was that the cost of moving, in the higher price bracket, became 15% (when you add agents/solicitors fees in the total) and the numbers of transactions reduced during the first two quarters of 2015 by up to 30% in some cases. Some home owners rightly turned to ‘staying put’ and decided instead to extend their existing homes, build basements and carry out loft conversions which gave them more accommodation without the need to move home –  this may be good for the Building Industry but is  bad for estate agents, solicitors and, in fact, The Exchequer’s Tax take.

You could argue this was a ‘lose-lose’ scenario whereby house buyers and The Treasury are ‘worse off’ for this Tax since, after all, it is transaction based i.e. fewer transactions less Tax – even at the higher charge level.

Here are some possible solutions for The Chancellor to consider in his Emergency Budget on July 8.

Option One

Make the seller (rather than the purchaser) pay the total Stamp Duty which could be deemed ‘a quasi Tax on the gain’ since otherwise the Capital Gain is tax free for personal/private residences.  Historically, any form of Capital Gains Tax on these has been a ‘no-go’ area for a Chancellor of any administration and would have been deemed toxic.

The net value of the seller’s home would then become 88% and not 100% of the value, to account for the Tax.

The downside to this would be that the loan to value ratio, for the seller’s mortgagee, changes for the worse and for the few people in negative equity this new arrangement will not help their plight either.

The upside is that buyers have, theoretically, 12% more to spend (since under this scenario they will not be paying the Stamp Duty Tax) and this may stimulate the property market.

There are winners and losers to this option however, if this is not attractive, I have another for you to consider.

Option Two

Let the seller and the buyer share the Stamp Duty charge between them (which at the higher end would be 6% each of the value).  The loan to value ratio for the mortgagees of the seller will be less disturbed and the purchaser would gain, effectively, a 50% discount on the Stamp Duty Tax that they would have otherwise paid under the old system and would, certainly, feel ‘better-off’ with this arrangement.-40%

Option Three

If the Stamp Duty liability was shared unequally by seller and buyer (in favour of the seller) i.e. on a ratio of 60%/40% this may lessen the pain on the seller.

Personally, I favour option two or three where the ‘pain and the gain’ is shared equally between seller and purchaser. If more transactions take place as a result the Chancellor will raise more money by way of the Stamp Duty Tax and, therefore, a  ‘win win’ for all.