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Stamp duty land tax causing issues in housing market

A report by the London School of Economics and the VATT Institute for Economic Research has indicated that the rate of home moving would increase by 27% if Stamp Duty Land Tax was completely abolished.

The Autumn budget may give some indication as to whether the increase in Stamp Duty Land Tax rates has actually reduced the amount of tax being received by the Exchequer.  There is certainly anecdotal evidence from estate agents in London where Stamp Duty Land Tax on a £2m house would now be £153,750 as opposed to £100,000 that the market has slowed as a result of the Stamp Duty Land Tax increase.  There is clearly an argument that this market may have slowed for other reasons.

More certain is the damage that Stamp Duty Land Tax is doing in relation to the Buy to Let market.  The Stamp Duty Land Tax on a Buy to Let property in Doncaster at a purchase price of £110,000 would now be £3,300; whereas, prior to 1st April 2016 there would have been no charge.  This has been damaging to the Buy to Let market as can be seen from Nationwide Building Society’s profits fall of 18%, which is attributed mainly to the reduction in Buy to Let advances.  Any slowing of the housing market in any sector has knock-on effects for other properties.  It is particularly noted that Stamp Duty Land Tax is probably deterring many older home owners from downsizing and also creating difficulties for people wishing to have a safe alternative investment to shares for their retirement.  Stamp Duty Land Tax also discourages people moving house and prevents younger people purchasing, which has a consequent knock-on effect of reducing supply and thereby increasing the price of houses.

The economy needs a vigorous housing market to stimulate related areas of the economy.  Recent Stamp Duty Land Tax changes have had the unintentional effect of slowing the sector whilst artificially maintaining prices, which may already be too high.  The demonization of Buy to Let landlords is also detrimental.  The economy needs private homeowners, private rental landlords and social housing.  Any distortion of the market place would have other unintentional effects.  A large council house building-spree would tend to prohibit mobility from area to area and consequently encourage economic stagnation.

Everything in moderation!


Author: Richard Gillatt, commercial property lawyer

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