Director of the Institute for Fiscal Studies, Paul Johnson, has recently called on the government to reform Stamp Duty Land Tax (SDLT), as reported in an article from The Times.
He recently shared his insights on the potential tax cuts proposed by UK Chancellor Jeremy Hunt, particularly in the context of the housing market. Johnson’s analysis centres on the impact of these tax cuts on economic growth and the housing sector.
Johnson begins by expressing scepticism about the feasibility of the Chancellor’s plan to reduce taxes while maintaining fiscal targets, given the current economic forecasts and the planned spending cuts in public services. He anticipates that any tax cuts implemented before the election may be counterbalanced by tax increases post-election, regardless of the election outcome.
Focusing on the housing market, Johnson advocates for a reduction in the SDLT – criticising SDLT for its detrimental effects on the housing market, such as impeding mobility, limiting the supply of houses for growing families, and disincentivising downsizing for those in larger homes than needed. Johnson suggests that abolishing SDLT for residential properties could cost around £9 billion next year, and halving this sum could eliminate the tax for primary residences.
However, Johnson acknowledges the political challenges of such a proposal, noting that a significant portion of SDLT revenue comes from high-value property transactions. He argues that while cutting SDLT rates on expensive properties might appear to favour wealthier homeowners, it could have a broader positive impact by stimulating the overall housing market.
What’s more, a recent report commissioned by the Family Building Society has recommended policymakers to reassess the enforcement of stamp duty for elderly homeowners looking to downsize. The report, sponsored by Lord Mandelson and Lord Heseltine, argues that older residents are often less likely to downsize due to a lack of financial incentives spurred on by high moving costs and the payment of stamp duty on their new home, encouraging these homeowners to remain in houses that are often unsuited to their needs.
To balance the distributional impact of such tax cuts, Johnson proposes increasing council tax on high-value properties, creating a fairer and more growth-friendly housing tax system. He also highlights the substantial amount of SDLT paid on additional properties, indicating the potential impact of reforming these rates.
Johnson points out the heavy taxation burden on landlords, including extra stamp duty, income tax on rent, and capital gains tax, which he argues indirectly impacts tenants through higher rents. He suggests that reducing the tax burden on landlords could benefit tenants and potentially stimulate economic growth.
Johnson also recommends several measures: reducing the stamp duty surcharge, relaxing mortgage relief restrictions, reforming capital gains tax to reflect real value increases, abolishing stamp duty on primary residences, and increasing council tax on expensive properties. He believes these steps, while not solving all housing market issues, would move the system in a more favourable direction and potentially boost economic growth, according to potential forecasts by the Office for Budget Responsibility (OBR).
