There’s been plenty of talk about devolving stamp duty lately. Back in November 2012, the Silk Commission (Part I) recommended devolution of stamp duty as one of a series of minor taxes to be devolved with little argument, and the UK Government recently announced that it would consult on the proposal.
The Welsh Government has said that it’s keen to see this tax devolved because it is “poorly designed” and “distorts the housing market” and is therefore ripe for reform. What type of reform we don’t yet know, although David Cornock has suggested the Welsh Government is keeping half an eye on developments in Scotland, where a new land and buildings transaction tax will replace stamp duty from 2015. The threshold for paying your 1% fee on buying a property will rise from £125,000 to £180,000.
But I’ve had a thought. And if the Welsh Government is serious about wanting to help first time buyers without losing a penny in revenue (and potentially gaining) they might want to pay attention.
For every property sale transaction there are two parties: buyer and seller. That means that a roughly equal amount of tax would be taken if stamp duty were to be shifted from the buyer to the seller. I say ‘roughly’ because the effect of transferring the tax would mean that instead of there being every incentive for the seller to inflate the price of the property – they don’t pay the tax currently – there might be slight downward pressure on prices because as the sale price increases so does the tax burden for the person who is benefitting from the sale price. I don’t think that would have a huge impact on house prices but then I’m not a property economist.
This shift in tax burden would have an immediate impact on the housing market, because struggling first time buyers by definition would have no tax to pay. And while there may be some very wealthy first time buyers who would benefit inordinately, they would be in the tiny minority. Most first time buyers purchase houses of modest price. This would also avoid at least one of the problems associated with government support schemes, principally that taxpayers’ money (in some form) is being used simply to inflate the market and create windfall house price increases for those already owning property.
So that’s the plus point from the buyers’ end of the market. How about the sellers’ end? Well, at some point most of us will be making friends with the worms, so let’s imagine that upon your death your house (if you own one) is sold. As part of your estate, solicitors dealing with your affairs will simply take the tax from the value in the estate. And if your estate is in the negative then the tax man comes pretty high on the debtors’ list. The main snag of this idea as far as I can tell is that if someone purchased well beyond their means and died suddenly, leaving an estate massively in debt, then the Welsh Government could struggle to get that tax revenue. Would the tax impact of that eventuality be counteracted by the activity associated with the increased ability of first time buyers to enter the market? Possibly.
Another advantage of this plan is that it would be a way of redistributing the tax burden from those of middle income (or capital) to the families of those of high income (capital) because stamp duty would be paid by the estate of people with enormous, highly valued houses (for example), who currently pay diddly squat. Is there an issue with selling a house to pay for the care of elderly relatives, and the tax being an additional burden on families with these caring responsibilities? Again, possibly. But as time goes by those families will themselves have benefited from not paying stamp duty on their first purchase.
In terms of timing, the move would be instant so the tax take wouldn’t take the hit. Some people would benefit from the change taking place on a particular date, but as long as the date were announced with a year or so’s notice that shouldn’t be too problematic. It would mean a rush for sellers eager to complete a transaction before the cut-off date with an equivalent resistance from buyers.
I said earlier on in this post that it could be a way to increase the tax take. And this is a further benefit of the idea. Because it’s the vendor, not the purchaser, who would pay stamp duty under this proposal, and the vendor has an asset (house), tax can be levied on any sale price. A 1% tax on someone selling a £100,000 house should cause less problems than for someone trying to buy that house. The obvious exception is if you’ve gone and ended up in negative equity, but it’s difficult to cater for idiots who think that house prices can only ever increase. Who knows, perhaps this revision of the tax would be a means of making people treat house purchase with a little more sobriety.
There’s one more point about this plan. Someone’s bound to say that house prices will equalise in any case and the purchase price for first time buyers will just increase as more competition for available housing arises. My answer to that is that perhaps that’s a possibility – but at least then the increased tax is paid by the vendor, not the first-time buyer.
And if you don’t own a house, well all this nonsense is going to pass you by. As long as the tax take increases – or at least stays the same – you’ll be happy in the knowledge that your’e not subsidising the housebuying circus.