Stamp Duty Land Tax Bill

Lord Northbrook Excerpts

Wednesday 11th February 2015 Lords Chamber

[Lord Northbrook (Con)]

My Lords, first, I declare my property interests as per the register of interests. The Stamp Duty Land Tax Bill proposals set out in the Autumn Statement are broadly welcome. Stamp duty was an area that was ripe for reform to assist first-time buyers and all those purchasing at below average or, where relevant geographically, average prices. As has been said, the new rules give a useful saving in duty if the house that is being bought is less than £937,500 in cost. Also welcome is the axing of the so-called slab system and its replacement by a progressive income-tax style levy. According to the Financial Times Lucien Cook, residential director of estate agency Savills, said that buyers of average homes outside London would pay “much lower” levels of stamp duty. He said:

“In particular, first time buyers and second steppers will find it easier to raise the deposit needed to obtain mortgage finance, removing one of the major hurdles in the current market”.

Mortgage brokers said that reforms would stimulate sales around the current stamp duty thresholds in particular. As already stated by my noble friend Lord Newby, above the level of £937,500, the total rate of stamp duty will increase. At the higher end of the market, it will tend to tilt the balance towards foreign ownership even more. As one estate agent, David Adams of John Taylor, told me, a buyer from Hong Kong who pays income tax at only 15 per cent is unlikely to be deterred in his London purchase, whereas the UK buyer at, say, the £2 million price level may be put off from making a purchase due to the extra stamp duty.

Does it matter that there is more foreign ownership of our housing stock? If it means that there are fewer transactions by UK buyers, a problem can filter down to lower levels of the market. UK residents may prefer to improve their existing house rather than fork out extra stamp duty on a new one, thus creating a logjam in the market. While the changes will encourage first-time buyers, it remains to be seen how they will affect the housing market as a whole. If house prices continue to rise, which is a distinct possibility due to low interest rates, particularly in London and the south-east, it could put pressure as well on the private rental sector, since potential purchasers will continue to be priced out of the market.

The cost to the Exchequer of the change is estimated to be £4.1 billion over the next few years, but other measures in the Autumn Statement cancel it out. As Paul Johnson, IFS director, has also queried, why has the same slab structure not been applied to non-residential property?

By this Bill, the Chancellor sensibly hoped to put pressure on the Labour Party to abandon its plans for a mansion tax. The legislation increases the rate of duty markedly to 10 per cent for house prices above £925,000 and 12 per cent for the amount above £1.5 million. However, the Opposition seem determined to press on with their mansion tax policy, which has been criticised by many of their own side. The policy could mean people having to sell their properties to pay the tax, which is a particularly vindictive form of taxation, so we could end up with higher stamp duty and a mansion tax.

One further area that I feel the Government should tackle is where UK properties owned by foreign individuals remain underoccupied. There is a strong case in my view for operating a version of the Swiss taxation system whereby these owners can pay a lump sum based on a quintuple of the rent assessable on the property. Can the Minister pass on this idea to HM Treasury? While effectively a mansion tax is charged on property purchases by offshore companies, there should be some similar levy on domestic UK properties bought by non-domiciled individuals who leave their house empty for a huge portion of the year.

The Government should also consider more tapered taxation rules in other areas, such as capital gains tax where, as has often been suggested by my noble friend Lord Lee of Trafford, short-term gains should be taxed at a higher rate and long-term gains at a lower one. That could actually increase the yield on the tax, which has fallen considerably since it was increased to 28 per cent for individuals. Such a move could mean more transactions in the property market, where secondary residences are involved, and a higher tax yield to the Government.

Finally, might it not have been better, from a government revenue viewpoint, to insert more council tax bands? This year the Centre for Economics and Business Research published some research stating that adding three extra brackets for high-end properties would generate an extra £4.7 billion a year in tax revenue, rather than a predicted stamp duty revenue loss of £4.1 billion over six years. If the Government did this, and in future reduced stamp duty rates, there could be more transactions, thus increasing revenue and freeing up the market.

None of the above would solve the problem of housing supply, which is beyond the scope of this debate. Overall I welcome the Bill, and I hope that an increased volume of transactions will reduce the cost to the Exchequer. The reduction in duty is welcome in a key area of the housing market.