Statistics released by HMRC in February have fuelled calls to extend the stamp duty holiday that is set to stop at the end of March. The figures show that the holiday had a substantial impact on the number of transactions taking place in Q4 of 2020, while having a much smaller impact on the total tax revenue brought in by stamp duty land tax. Transactions were up 43% on Q3 2020, while tax receipts were just 16% lower than in Q4 2019, when no incentives were in place and the threshold was far lower for homebuyers.
These latest figures have led commenters to call for an extension to the holiday, or for the tax to be scrapped altogether at the lower end of the market, to keep the market moving. The stamp duty holiday has meant that homebuyers across England and Northern Ireland pay no stamp duty when purchasing homes up to a value of £500,000, with a reduced rate for homes above that. For someone buying a £500,000 property, the saving is worth £15,000.
The end of the holiday on 31 March 2021 has led to a backlog in transactions as the logistics of the housing market have not been able to keep up with demand. At the same time, agreed-upon deals have fallen through as homebuyers and sellers pull out amid concerns over transactions not being completed prior to 31 March.
David Hannah, founder and principal consultant of Cornerstone Tax, argues that stamp duty “cliff edge” must be extended or softened, in order to avoid a significant fallout for the property services industry, alongside sellers and buyers alike: “These statistics demonstrate what we have known for some time,” he says: “that the lower end of the market – while responsible for the majority of purchases – has a smaller impact on the overall tax take. It also reiterates the need for some kind of move to avoid a stamp duty holiday cliff-edge.
“Calls to make the holiday permanent or scrap the tax altogether seem unrealistic given the levels of public debt and the £12bn tax take it generates each year, but having such a strict cut-off point, particularly in such a turbulent and difficult housing market and economic climate could result in a catastrophic drop in demand and prices.
“Raising to the nil-rate band, to somewhere around £300,000, will benefit the majority of buyers without affecting a large amount in tax revenues, which is obviously key to the recovery of public finances. These statistics demonstrate the importance of keeping the market moving to other sections of the economy and first-time buyers, those likely to spend less than £300,000, are the driving force behind this movement.
“Home ownership is key to the UK economy, upward mobility and the aspirations of many that are currently struggling to get on the property ladder. Making it easier to move house without being penalised for doing so will make it easier to move to areas of growth and where jobs are – especially important as we see a de-urbanisation and migration away from cities in the wake of the pandemic.”
