The property market is like a ship built to carry people where they need to go. Stamp Duty Land Tax (SDLT) has always been a hole below the waterline. It was a flawed tax from the outset, built on the notion that fining people for moving house was a fair and sustainable way to generate revenue. In practice, it has always been regressive, disruptive and damaging to the housing market.
Anyone who wants to move, whether to downsize, relocate for work, or expand into a home fit for a family, faces an additional cost simply for making that change because SDLT punishes activity. The result is that too many people stay put when moving would, in principle, be more beneficial for them, for their families – even for the country.
Downsizers are deterred, which bungs up the supply of larger homes and exacerbates the housing crisis. Workers think twice before accepting jobs in new locations, with consequences for labour mobility and the wider economy. And first-time buyers find themselves priced out of the very market that government policy is supposed to help them enter.
Levying sin taxes on cigarettes and alcohol is one thing, disincentivising older people from moving into a retirement community is another. SDLT acts as a brake on transactions, reducing revenue for brokers, estate agents, surveyors, and conveyancers.
That is why I was not horrified to learn government officials have been told to study how a new proportional property tax– effectively, a replacement for council tax and SDLT – could work.
The current Council Tax system is pegged to valuations from 1991. Since then, on average, values in London have increased more than twice as much as in the North East, for example. At the very least we could update the valuations.
This does not represent the logistical nightmare it once did. Modern technology makes a nationwide revaluation more feasible. Institutional investors have been using Automated Valuation Models (AVMs) to determine risk when purchasing collateralised mortgage loans since the 1990s; the models are now more sophisticated and cost-effective.
We know proportional property taxes could work because they already do elsewhere. In France, a tax is imposed on properties worth more than £1.12m at a rate of between -0.5% and 1.5%. In New York state, the rate is about 1.5% on the value of your home. It varies from county to county in the state. An annual levy calculated on the value of a home is an established principle in many jurisdictions.
There is a strong case for the UK to consider doing the same thing. It would make it easier for people to move when they need to, whether to downsize, upsize, relocate for work or take their first steps on the ladder. It would bring greater fairness to the system by ensuring liabilities reflect real property values. It would, in turn, create a steadier flow of revenue for the Treasury, one that does not depend on unpredictable levels of market activity. If the ship is unsteady and the waves are crashing over the bow, it is not time to start fishing.
Even if the principle makes sense, the way it is handled is just as important. While the idea of a new 0.48% flat tax on the value of property (one of the options mooted) is not inherently bad, in the short-term, we should acknowledge that merely floating the idea could lead to a significant slowing down in the housing market, hitting sales and cutting revenue.
Who is going to buy a new house now if they think they could save tens of thousands of pounds on SDLT by holding back for a year or two? If you want to scrap SDLT and reform property taxes, by all means do so. But don’t moot it just for a few column inches. Flying kites in August for the sake of publicity can do real harm: the whole industry, from agents and brokers to conveyancers and surveyors, could feel the knock-on effect.
At HouzeCheck, we welcome the idea of replacing SDLT with a fairer, modernised system that removes a regressive and damaging tax that should never have been part of our housing market in the first place. It is time to steady the ship – and we might as well fix it so it doesn’t take on water. But change should not come through headline-grabbing empty announcements. If the Government is going to navigate these challenges effectively, it must commit to change and present solid proposals.
Richard Sexton is commercial director at HouzeCheck
