SDLT is one of those taxes that we have come to accept. It’s simply a cost many of us must factor in if we want to buy a new home. What we don’t often ask is, ‘why am I paying this’? With many taxes you can point to a sound logic and fairness for their existence, but that’s not so easy with SDLT.
Perhaps the best explanation was that given by William Pitt the Younger in his 1797 Budget when he described stamp duty as:
‘easily raised, widely diffused pressing little on any particular class, especially the lower orders of society, and producing a revenue safely and expeditiously collected at a small expense.’
Put simply, most of us pay it, it’s straightforward and it generates a lot of revenue. With those factors going for it, the Chancellor probably doesn’t want to spend too much time scrutinising it. However, having granted the wish of an SDLT holiday, the Chancellor is finding it harder to put this particular genie back in its bottle.
Perhaps the problem for the Chancellor lies with the fact SDLT has moved too far away from Pitt’s ‘little and often’ philosophy. In a little over 10 years, the SDLT revenues generated on residential property transactions have ballooned from just under £3 bn in 2008/09 to around £8.4 bn in 2019/20. A combination of SDLT rate increases and booming property prices in that time have made it a key source of funds for the Treasury and a thorn in the side of home buyers.
So, should the Chancellor extend the SDLT holiday or scrap it altogether? Those against such a position could point to the distortionary impact the SDLT holiday has had on property prices. The short window of lower SDLT rates has artificially inflated prices and made it even harder for some to get onto the property ladder. Perhaps SDLT is inadvertently keeping the market in check from spiralling upwards out of control?
The counter argument is that the 'window of opportunity' and pent-up demand are to blame for spiralling prices. Some may also point to SDLT itself fundamentally distorting the property market, with potential downsizers put off moving due to the associated SDLT cost, tying up valuable housing stock. Indeed, most home buyers are affected, and the number of residential property transactions are potentially suppressed by the current SDLT regime.
At a time when the Chancellor is going to be focusing on generating additional revenues, it is probably naive to think SDLT could be scrapped entirely, but there could be merit in scaling it back, so it once again falls under the radar. Such a move could have wider economic benefits too if it drove up the number of residential property transactions and the associated activity that brings.
Taxpayers need to be careful what they wish for though, as such a cut could provide coverage for the introduction of that most politically poisoned chalice: the dreaded ‘mansion tax’.