Opinion

Will the Budget's stamp duty holiday help buyers? Don't bet on it.

The Budget's stamp duty holiday would raise house prices, stimulate the construction industry, mean more money spent on wallpaper, furnishings, consumer goods and so on. Everyone's a winner, right? Wrong, says Jonn Elledge.

London, England, United Kingdom - February 11, 2015: FOR SALE and TO LET real estate agent signs outside residential housing development in Hackney. Many house rental and sales agency signs in a row. Multiple sign boards.

He did it: to the surprise of nobody who has been within 50 miles of a British newspaper of late, he actually bloody did it. In his Budget today, chancellor Rishi Sunak went ahead with his much trailed plan to extend the Stamp Duty Holiday, which was due to expire at the end of March.

The move means that anyone buying a primary property worth up to £500,000, won’t pay a penny in stamp duty until the end of June. Even in this housing market, that will apply to quite a lot of sales. After that, the stamp duty holiday will continue on transactions up to £250,000 for another three months, in an attempt to “smooth the transition”. The tax will only return to its pre-pandemic levels in October.

You shouldn’t imagine, though, that this will actually make property any cheaper. As the government mortgage guarantee scheme Sunak announced – essentially, a bet on further house prices rises – suggests, it’s almost certainly intended to do quite the opposite.

Stamp Duty Land Tax (SDLT) is, technically, a tax charged on the government legal documents you need to buy a property. Given that it’s one of the main ways we tax property in this country, and given that we’re several decades into a quite ridiculous property boom, the government has mucked around with SDLT quite a lot in recent years, to raise more cash or smooth out distortions or, frankly, to prop the market up when prices started to wobble.

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The stamp duty holiday, introduced last July, was explicitly intended as part of the government’s first post-lockdown stimulus, the same package of measures that would also see Sunak subsidising affluent people to share food and germs through Eat Out To Help Out. The idea was that, by letting all buyers off stamp duty on any property up to £500,000 – saving buyers as much as £15,000 – the government would make people more likely to buy homes. That would raise house prices, stimulate the construction industry, mean more money spent on wallpaper, furnishings, consumer goods and so on. Everyone’s a winner, right?

Wrong. Firstly, the announcement was inevitably greeted by understandable whinging by those who had just bought a property, stumped up for their stamp duty like a good little taxpayer, and now found that if they waited a week they would have saved themselves thousands of quid. (This BBC story contains a quite magnificent selfie, with a caption beginning “James Davies is angry”. Well, yes, you can tell, just by looking at him.)

Secondly, while landlords and second home owners still pay something, the stamp duty holiday applies to all primary home purchases, whether they previously owned a home or not. First-time buyers haven’t paid stamp duty on properties worth up to £300,000 since 2017. Letting everyone else off the tax – and on properties worth up to £500,000 – removed one of the few competitive advantages those buyers had against people that generally have a lot more money than they do.

The cliffedge will come, whenever the holiday ends. Perhaps, whatever Sunak said today, it will never end at all

Lastly, and most importantly, it’s not actually clear that cutting stamp duty makes housing cheaper: quite the opposite. House prices, after all, are largely set by what buyers are capable of paying. If your budget is £400,000, then removing the chunk that you have to pay to the Treasury just frees you up to pay more to the vendor. The maths is more complicated than that, and research suggests that at least some of the benefits of a stamp duty cut go to buyers rather than sellers. Nonetheless, it’s all but certain that one side effect is an increase in house prices. A cut in stamp duty doesn’t make housing more affordable: it just cuts the rate at which those exorbitant house prices are taxed.

None of this is to say that stamp duty doesn’t need reform. It’s a weird tax, paid by buyer rather than seller, and the various rules and cliff edges almost certainly do have distorting effects, raising prices on some properties, lowering them on others, preventing some moves altogether. Campaigners like Fairer Share are calling for SDLT to be abolished altogether, and for it to be combined with council tax into an annual property tax.

But this government has shown little appetite for such a radical reform, or for making those who have benefited from runaway house price inflation pay their share. Sunak said he was extending the holiday to prevent a cliffedge – a sudden increase in the tax due on transactions after 31 March. But that cliffedge has been deferred, not removed, and Sunak’s attempts to “smooth the transition” do nothing to change that: if you’re buying a home for £350,000, you still hit a stamp duty cliffedge at the end of June, and the fact someone buying one for £240,000 won’t hit it til the end of September will be of little comfort.

So the cliffedge will come, whenever the holiday ends. Perhaps, whatever Sunak said today, it will never end at all.

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