It has been widely reported that the Chancellor is to announce a Stamp Duty holiday, raising the point at which the tax becomes payable to £500,000, to take effect in the autumn.
The Chancellor is hoping that like a defibrillator, the measure would send a high energy shock to return an ailing housing market to its normal working state, but it may not work.
The Institute of Fiscal Studies seems to think it will. They said that there was a “good chance” that the plan would be effective in the short term. But there are reasons to be guarded.
First, who would choose to buy now rather than wait until the autumn? Unless this is backdated, this will surely have precisely the opposite of the desired effect and cause the “low end” of the market to grind to a halt over the summer?
Secondly, the last Stamp Duty holiday in 2008-2009 had mixed results. Studies showed that it increased transaction volumes by 8% but, significantly, the increase was offset by a substantial downturn when the holiday was withdrawn. This meant that it mostly made people bring forward completions. Studies also showed that buyers were only able to enjoy 60% of the tax break, with sellers sharing the rest by increasing prices.
If this is intended to help first-time buyers, as Government sources have apparently said, is it really needed as we already have first-time buyer relief for purchases up to £300,000, which is comfortably above the average house price in Britain.
If the holiday takes effect as an increase in the nil-rate band, then everyone will benefit, including the wealthy and professional investors. But if it is “hard-edged”, like first-time buyer relief, meaning that a purchase £1 above £500,000 is taxed in full, then this will produce bunching (or a cliff-edge) at £500,000 the likes of which we have not seen since the abolition of the “slab-system” in 2014.
Hopefully, the Chancellor has already thought about these issues and will unveil his solutions to them in two days’ time. Buyers will wait nervously until then, hoping that he makes a clear announcement rather than producing more speculation on possible changes.
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