Stamp duty cut slammed for cutting tax for landlords too

Stamp duty cut slammed for cutting tax for landlords too

2020-07-10 14:10:39
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Chancellor Rishi Sunak’s stamp duty cut came under fire today as critics warn it will unfairly benefit buy-to-let investors and second-homeowners, and perpetuate unaffordable house prices. 

They voiced concerns that the tax holiday on the first £500,000 of a home’s purchase price also benefits buy-to-let investors and second-homebuyers – who will still pay stamp duty but not as much as previously – and could artificially prop up house prices for the next year. 

However, that effect will be offset by a mortgage crunch, job losses 9million people furloughed and economic slowdown, with the Cebr suggesting house prices will still fall more than 16 per cent over the next two years.

The Chancellor has raised the stamp duty threshold to £500,000, saving buyers thousands

 The Chancellor has raised the stamp duty threshold to £500,000, saving buyers thousands

In a bid to boost the housing market the Chancellor announced on Wednesday that most homebuyers won’t pay any stamp duty on the first £500,000 of their home purchase from now until next March.

This will save homebuyers – particularly in the south of England – thousands of pounds and was widely welcomed by many homeseekers and property professionals as a much-needed shot in the arm to get the market moving. 

The widely forecast house price falls that are likely in a Covid recession would largely benefit first-time buyers.

But the Institute for Fiscal Studies warned that the measures could in fact result in a rise in house prices, making first-time buyers in particular worse off. 

Helen Miller, deputy director of the IFS said: ‘Although it’s buyers who are required to hand over stamp duty, the effect of stamp duty can be passed on to sellers. When there’s a tax break, this can lead to the price of houses going up. 

‘Now [stamp duty relief] is across the whole market, it’s more likely that prices will rise and therefore first time buyers could be left keeping less of the discount that they already have.’

> Work out your potential bill with out stamp duty holiday calculator 

Labour meanwhile have criticised the stamp duty holiday for unfairly benefiting landlords and second home owners.

Labour’s Shadow housing secretary Thangam Debbonaire said: ‘It is unacceptable that the Chancellor tried to sneak out this huge bung to second homeowners and landlords while many are desperate for support.’ 

The Conservatives in turn have accused Labour of ‘political point scoring’.

In recent years landlords have been hit with a cocktail of tax changes including a 3 per cent surcharge on second homes. This was originally brought in to discourage landlords from snapping up smaller homes that would be sought after by first-time buyers. 

Earlier this year This is Money revealed that hundreds of thousands of landlords have left the market in recent years as a result of the tax changes of recent years.

And before the pandemic hit a third of private landlords said that they were looking to sell at least one property over the next year.

However, while they will still have to pay the 3 per cent surcharge, landlords will now see their stamp duty bill significantly reduced when purchasing new property thanks to the Chancellor’s measures. 

Charlotte Nixon, mortgage expert at Quilter, says this week’s changes may go some way to reversing dwindling landlord numbers.

The IFS said the tax break could make first-time buyers worse off than they were before

The IFS said the tax break could make first-time buyers worse off than they were before

She said: ‘Buy-to-let investors have left the market in their droves over the last few years. The stamp duty holiday may serve to entice some of these investors back to market.

‘It remains to be seen whether the holiday will boost long-term property demand, or simply front-load demand as people rush to complete purchases while the reduced threshold is in place.’

David Westgate said the holiday could see prices rise as demand increases. 

‘It is possible that we will have a boom scenario between now and April next year when a disproportionate number of people are buying at higher prices followed by softer prices when the scheme ends and asking prices are adjusted,’ he said.

‘Arguably the real winners will be purchasers of higher value properties who have just had £15k knocked off their completion bill, not the people it was intended for.

‘Cliff edge deadlines completely distort the market and rarely benefit the consumer.’

How much will landlords save? 

While many home buyers particularly in the South East and London will undoubtedly benefit, the average landlord purchase will also see big savings.

For example as illustrated in the chart below a £400,000 second home will now only carry a stamp duty bill of £12,000 rather than £22,000.

While this is still £12,000 more than a standard house purchase due to the 3 per cent surcharge, the landlord will still now save £10,000, the same as a standard home buyer would  by not paying any tax at all.

Shadow housing secretary Thangam Debbonaire said: ‘[Sunak] should be targeting support to those who need it, not helping people invest in buy-to-let properties and holiday homes.

‘An unnecessary subsidy for second homeowners will only worsen the housing crisis by reducing the supply of homes overall.’

Conservative Party co-chairman Amanda Milling replied: ‘It beggars belief that Labour is against plans to help thousands of families across the country. Our plans mean 90 per cent of people getting on or moving up the property ladder will pay no stamp duty at all.’  

Where will benefit most from the cut? 

Because of the way stamp duty is structued some regions will benefit far more from the cut than others. In particular, buyers in the South East and London will see the biggest savings due to the high house prices in these areas.

Average saving by region under new stamp duty relief 
Region Average property price Stamp duty saving
London £485,794 £14,289
South East £323,353 £6,167
East of England £291,254 £4,562
South West £263,360 £3,168
West Midlands £195,971 £1,419
East Midlands £194,664 £1,393
North West £166,202 £824
Yorkshire and the Humber £159,208 £684
North East £126,945 £38
Source: AJ Bell 

These two regions alone are usually responsible for 70 per cent of all stamp duty receipts. 

In fact, the average London buyer might see a saving 37 times bigger than a buyer in the North East. 

Because of this experts expect the cut to have a far greater impact on the housing market in the South than in other areas. 

Laura Suter, personal finance analyst at AJ Bell, said: ‘While the stamp duty holiday is intended to get the housing market moving, these figures show that it’s likely to provide a far bigger incentive in the already affluent areas of London and the south-east and will have a much more muted impact in other areas of England. 

‘Dangling the chance to save less than a hundred pounds in tax isn’t likely to prove much of a push to get potential buyers out house hunting, while offering a tax break of thousands of pounds will have much more impact.’

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