Boris to switch Stamp Duty from Buyers to Sellers

It’s always gratifying to see one’s ideas vindicated in reality – a kind of benign schadenfreude, if you like. This week, Boris mooted that he could switch Stamp Duty from buyers to sellers, something that I have been proposing for a number of years.

It could end a long period of market stagnation, instigated by witless former Chancellor George Osborne’s Stamp Duty escalator ‘reforms’ in that ill-fated Autumn Budget of 2014.

His strategy (probably scribbled on the back of a chewing-gum wrapper) tried to re-model the ‘slab-sided’ previous system by removing buyers at the lower end out of the SDLT net altogether whilst at the same time clobbering potential buyers of over £900,000. If they had the temerity to own more than one property, they were hammered with a surcharge. So much for the property-owning democracy and the party that supports entrepreneurship.

This was a foolish, uncollegiate and arrogant plan. It was meant to pay for itself, but induced a DIY recession across the Capital and beyond, dragging prices and transactions down by 35% and 60%, respectively.

SDLT costing Treasury over £1billion

Recent reports from the Treasury Receipts have demonstrated that these reforms are costing over £1billion per annum. Not surprisingly, UK development companies have seen the economic writing on the magnolia wall and are retreating from the Capital, quashing the opportunity to build much-needed affordable housing. You can just count the nano-seconds before someone in government starts squealing about the UK’s ‘housing crisis’. Perhaps they should make the effort to analyse the reasons as to why there is a shortfall of around 300,000 homes per annum.

As is now apparent, the Maybot was a tacit leftist who was running scared at the prospect of a Corbyn dictatorship. Unfortunately, that diffidence meant the lack of political will to kick Chancellor Hammond into action and sort out the costly and self-defeating Stamp Duty scales.

Boris, on the other hand, is a much more adventurous character and may play around with the Stamp Duty rates as he pleases.

Sharing the cost

Two years ago I suggested that if there was no intention of rectifying SDLT levels, perhaps this penal tax could be shared between buyer and seller, thereby halving the pain.

Of course, with all these potential reforms, everything is in the mouse print. As the seller is liable for the tax, this can affect the loan to value ratio, particularly at the margins.

Banks, building societies and lending institutions will become twitchy if they think that upon disposal a seller has less equity to pay off the loans. These institutions will be mindful that HMRC is always lurking in the wings, keen to grab their portion of the spoils.

It’s the economy, stupid

Sharing the SDLT liability between buyer and seller lowers the threshold, which promotes much-needed activity. Lest we forget, there is an intrinsic link between Residential Property Sector growth, retail spending and the health of the UK consumer-led economy. Modest growth in Residential Sector values gives the nation a sense of affluence, as debt (and we have a lot of it) shrinks in relation to equity. According to Bloomberg’s latest survey of economists, the UK economy shrank for the first time since the second quarter. As we adjust to this post-Brexit era, any genuine stimulus is more than welcome.

So while Mr. Johnson is in the first flush of romance with his impending promotion, I suggest the following ‘wedding list’ for him and the next Chancellor: drop the top rate of Stamp Duty, which will encourage positive sentiments and get the markets moving. Capitalise on that by sharing the liability between buyers and sellers. Sit back and watch the multiplier effect spread the good feelings – and proceeds.

With the existing system, potential purchasers looking at a liability of up to 15% will shrug their shoulders and realise it’s not worth the upheaval. If they want a change of scene, they can just refurbish their existing abode. Alternatively, some buyers will transmogrify into uber-tenants, renting instead of buying the property. The upshot is that the Treasury is depleted of SDLT receipts.

So think carefully before you act Mr. Johnson, since the private Residential Property Sector is the golden goose of this country. We have never needed those golden eggs as much as now.