Shaving 36% Off SDLT Could Improve Transactions By 40%

Following Boris Johnson’s campaign pledge involving a revaluation of stamp duty land tax (SDLT), a buying agency expert has estimated that changes to the current system could produce a tax benefit worth over £9 billion per year

According to buying agency, Ludgrove, this could be achieved via a 36% reduction in stamp duty land tax which would increase residential property transactions by 40%,de-‘gumming’ the market.

Whereas other economic forecasts have looked at the impact a change would have on specific SDLT tax receipts, the Ludlow report looks more broadly at the whole tax revenue and business revenue picture. The outlook projections suggest the changes would actually improve the economy and tax related income.

It estimates that a 36% blanket decrease on SDLT will cost the government £940 million per year in lost taxes. However,the total tax revenue increase from indirect taxes related to the property market would offset and overtake this loss.

The 36% reduction is likely to increase transaction volumes in England from 1.023 million transactions in 2018 to over 1.43 million.

Additional transactions will also lead to increases in taxes paid via VAT, Corporation and Employment tax. Estimates suggest that a 40% increase in transactions would produce a 10% increase Total Tax Revenue through a net gain of £1.44 billion. This will be boosted by a £2.38 billion annual increase in taxes paid from businesses working in the property sector – legal, estate agents, surveyors etc.

The improvement in the movement of property will also create a 40% (£8.36 billion) in business revenues. Overall, this will create a £9.8 billion increase in Tax and Business Revenue to the UK economy at a time when Brexit could manipulate a downturn.

The report further argues that by switching SDLT accountability from buyer to seller, these estimates could increase even more.

Conveyancers will need to be ready for potential changes of this magnitude in the near future. Some have claimed that such a transaction increase in the English residential market will place additional strain on conveyancers who may not be able to cope with the influx of extra demand.

Fraser Slater, Chief Executive of buying agency Ludgrove, commented:

“Our analysis demonstrates the effect of what economists describe as ‘The Laffer Curve’, namely that tax cuts can generate more tax revenue and equally importantly more economic activity – upon which taxation itself depends.

“If Mr Johnson is bold enough to cut Stamp Duty by at least 36% and switch the liability to the Vendor we are confident that our estimate of a £9.8bn boost to business and tax revenues would be surpassed, potentially transforming the broken property market, ‘un-gumming’ property chains at the top-end and leading to greater liquidity throughout the market.

“In turn this will create greater utilisation of the existing housing stock and encourage the conversion of tired stock to modernised rental units by Investors and new housing starts by Developers. Moreover in the context of 13 revisions to Stamp Duty since 1997 and transactions in the doldrums it is safe to say the system has failed and it is time for a new approach. Following Mr Johnson’s election as Prime Minister we hope he has the courage to grasp the nettle and overhaul the dysfunctional system once and for all.”

Do you think these changes could lead to such a huge increase in residential transactions? Could the conveyancing sector cope with increased demand?

 

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2 Comments

  • test

    Good to see Ludgrove backing the Association of Accounting Technicians idea to switch Stamp Duty liability from the buyer to the seller. This idea was widely covered in the property press last month and appears to be gaining a head of steam, let’s just hope Boris is listening!

  • test

    This is an interesting contribution to the ongoing debate on Stamp Duty reform.

    AAT has long recommended switching stamp duty liability from the buyer to the seller and although recognising that doing so is not a panacea, it would be considerably fairer, simpler, more effective and cheaper than the current Stamp Duty regime.

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