Stamp Duty Land Tax Bill

David Gauke Excerpts

Wednesday 10th December 2014 Commons Chamber

[The Financial Secretary to the Treasury (Mr David Gauke)]

I beg to move, That the Bill be now read a Second time.

My right hon. Friend the Chancellor announced in last week’s autumn statement an important and comprehensive reform to stamp duty land tax—SDLT—on residential property. Many Members made their views known on the SDLT changes in last week’s debate on the provisional collection of taxes motion. Today is an opportunity for others to raise their voices, although looking around the Chamber, it appears possible that the House’s appetite for debating this matter was sated last week.

With effect from 4 December, the structure, rates and thresholds of stamp duty land tax have changed, and stamp duty has moved from a slab to a slice arrangement.

[Alok Sharma (Reading West) (Con)]

Of course I, like many colleagues, welcome the measure. My constituents are some of the most aspirational people in the country, and they think that this is a great move by the Government. What assessment has my hon. Friend, or perhaps the Office for Budget Responsibility, made of likely increases in the volume of property transactions as a result of this change to stamp duty?

[Mr Gauke]

This is likely to have an impact, with more transactions for properties on which the stamp duty bill has fallen—some 98% or so—and slightly fewer transactions when a larger stamp duty bill will apply. Although there will be an element of behavioural change as a consequence of the measure, property transaction numbers and house prices will be affected by a whole range of factors, so it can be difficult to ascribe any particular changes to one particular reason. However, it is likely that there will be more transactions, and that has certain advantages, such as for labour market mobility, and if it means that people are living in the homes that they want to live in as opposed to feeling trapped in their property to a certain extent. I think that the measure will have a beneficial impact on the housing market.

Each new SDLT rate is now payable only on the portion of the property value that falls within each band. That is in contrast to the old system, under which tax was due at one rate for the entire property value. Moving from a slab to a slice arrangement is right in terms of fairness and economic efficiency. The new arrangement will cut SDLT for 98% of people who pay the tax, and no one who is buying a home worth up to £937,500 will pay more.

This Government believe in aspiration. The aspiration to own our own house is one of the elements of human nature. It is something that, for generations, has been totemic for people in this country. This is a Government who will help people to achieve that ambition, and do so in a fair and equitable way.

The previous stamp duty system was flawed. It had been criticised by hon. Members on both sides of the House, industry and think-tanks. It was

“one of the worst designed and most damaging of all taxes”,

according to the director of the Institute for Fiscal Studies, and “unfair” according to the Building Societies Association. According to the Royal Institution of Chartered Surveyors, it did not

“work as it stands and creates large distortions”.

The problem with the previous system was simple. The slab approach created an enormous hike in taxes at certain thresholds. If someone paid £250,000 for a house, they would pay £2,500 in stamp duty. If they paid £250,001, however, they would pay £7,500—three times as much. In reality, of course, nobody did; they would have been crazy to. What happened was that there were dead zones—in this case a little above £250,000—in which almost no transactions actually took place.

To return to the intervention made by my hon. Friend the Member for Reading West (Alok Sharma), this change is likely to result in a substantial increase in the number of transactions in those dead zones because of the ending of the bunching effect, which should help us to have a more efficient market. Let me again give an example that I cited in last week’s debate: in 2013-14, there were over 30 times as many sales between £245,000 and £250,000 as there were between £250,000 and £255,000. Given that the average UK house price is around £275,000, this was a big distortion affecting a significant number of properties.

What also happened was that people owning properties a little under the threshold were reluctant to improve them for fear that that would be money thrown away if they came to put the property on the market. Also, people wishing to move up the property ladder as their families grew, but who found themselves on the wrong side of the step upwards, had to find a significant—and arbitrarily imposed—lump sum precisely at a time when there are hundreds of other one-off expenses to worry about. We have got rid of the inefficient and distortive old system, and replaced it with a fairer new system that cuts SDLT for 98% of people who pay it.

Under the new structure, no buyer purchasing a property will pay anything at all up to the first £125,000. Buyers will be charged 2% for the portion from £125,000 to £250,000, and 3% for the portion from £250,000 to £925,000. Those individuals buying a house worth more than £925,000 will be charged 10% for the portion of the price between £925,000 and £1.5 million, and buyers will pay 12% tax for any portion of the price above the £1.5 million threshold.

I stress that the tax will be paid once, and once only, at the point when the purchaser has the cash to do so. Once it has been paid, that is it, because we do not believe in introducing a system that would require homes to be revalued every year, or in imposing a large liability on people who may be asset-rich but cash-poor.

[Ian Swales (Redcar) (LD)]

I welcome the rate profile that my hon. Friend has put into the Bill. Does he agree that the measure is another example of this Government increasing taxes for the wealthy and making those with the broadest shoulders bear the biggest burden?

[Mr Gauke]

It is an example of that. In yesterday’s Treasury questions, in the context of the reduction of the 50p rate of tax to 45p, I pointed out that the proportion of income tax paid by the top 1% has been higher—and is projected to be higher—in the years since that cut than it was when the 50p rate was in place. There is a similar point to be made here. For properties, we estimate that the top 1% will be paying just under 40% of all stamp duty yields, whereas in 2010, under the old system, the top 1% were paying only 19% of all yields. Stamp duty has become more progressive as a consequence of our changes.

[Mr Jim Cunningham (Coventry South) (Lab)]

How does that affect the shrinking tax base? This is a genuine question, by the way. The tax base seems to be shrinking at the moment, so will this change have an impact on the tax base, or will it be neutral?

[Mr Gauke]

I do not know whether the hon. Gentleman is referring to the fact that there has been a deliberate shrinkage of the tax base, in that we have taken 3.4 million people out of income tax. Perhaps that was not what he meant, but I am happy to draw the House’s attention to that policy none the less. The Government have, on a number of occasions, made the tax system more progressive. At a time when the public finances are in a difficult position and we need to consolidate them, we have ensured that the wealthiest in society bear a significant burden, and this measure is an example of that. We have made stamp duty land tax more progressive by reducing the burden on ordinary households and collecting more tax from the top end, where there has been a significant appreciation in values in recent years.

[Alok Sharma]

My hon. Friend talked about the yearly property tax that others have proposed, but irrespective of whether such a tax were introduced, is it not the case that it would not help those who want to buy their own house? Does he agree that the Government are introducing aspiration into home buying, which is something that we should all be encouraging?

[Mr Gauke]

Indeed; that is right. These measures will be helpful for those who want to get into the housing market and who often face significant challenges in putting together a deposit and meeting the transactional costs involved. I believe that it will be helpful that we have been able to reduce the transactional costs. I return to the point I made a few moments ago: this measure will help households up and down the country and we, as a Government, believe in aspiration.

Let me stress that in every city, town and county in the United Kingdom, a large majority of people will benefit from the new system. No buyer of a property under £937,000 will pay more tax than under the previous system, and there will be a tax cut for 98% of home buyers who currently pay SDLT. In London, 91% of home buyers who pay SDLT will see their tax bill cut. In Scotland, Wales and Northern Ireland, over 99% of those paying SDLT will see the rewards in their pockets. A buyer of the average Help to Buy home priced at £185,000 will be £650 better off as a result of these reforms.

The reforms came into force at midnight on 4 December to avoid creating undue distortions in the market, meaning that a stand-alone Bill was necessary. The Bill was introduced in Parliament on 4 December, following a provisional collection of taxes motion at the end of the autumn statement. If a person had exchanged contracts before 4 December but completes on or after that date, our transitional arrangements mean that they can choose whether to use the old or the new rates and structure. We have provided a calculator on the Her Majesty’s Revenue and Customs website so that people can work out how much tax they would be paying, and I am happy to confirm that it has been used more than 880,000 times since it was put in place on Wednesday.

It is a bit of a standing joke that the UK is a country obsessed with house prices, but for most of us, buying a home involves the biggest amount of money we will ever spend. Stamp duty land tax is an important source of Government revenue. It raised £6.5 billion in 2013-14 to pay for the essential services that the Government provide and support. However, it is only reasonable that the tax should be imposed fairly and equitably. As a result of difficult decisions that we have taken elsewhere, we are now able to forgo £800 million of revenue to introduce these changes.

The changes have been warmly welcomed. They are

“great news for those buying a home or considering a move”,

according to Nationwide. They are particularly good for

“first time buyers and second steppers”,

according to Savills, and

“a shot in the arm for families and growing firms”,

according to the CBI. My particular favourite came from a Mr Tom Whipple—a science correspondent for The Times—on Twitter, who wrote:

“We are moving home next week. Osborne just saved us £400. I’m calling our new fridge freezer George.”

That is how to become a household name in politics!

On a more serious note, I would like to touch on how the change affects Scotland. From 1 April 2015, the land and buildings transactions tax—LBTT—will replace stamp duty land tax in Scotland. Up until that point, these reforms will apply to all residential property transactions in the UK, including Scotland. This will ensure that home buyers in Scotland do not miss out on a potential tax cut before the LBTT comes into operation.

I am aware that there are some in the UK who will be unaffected by this change. As housing has become less affordable, the rate of home ownership has fallen from its 2003 peak of 70% to around 65%. Many are wondering whether they will ever get on to the housing ladder. Our reforms to SDLT will assist those households by reducing the amount of cash needed at the point of purchase. It should be stressed that SDLT is part of a much wider set of reforms designed to get Britain building, to increase radically the supply of housing units, and to release some of the pressure on our housing market.

[Alok Sharma]

The Minister cites the schemes that the Government have implemented to help people to buy their own homes. Will he tell us how many people have benefited from the Help to Buy scheme? Will not these changes give a further boost to the scheme?

[Mr Gauke]

My hon. Friend raises an important point. Indeed, I am about to mention some of the measures that we have taken in respect of helping the housing market, including Help to Buy.

We are investing billions of pounds of public money to provide affordable new homes, including £4.5 billion during this spending review period to provide 170,000 new units, and a further £3.3 billion to deliver 165,000 more units over three years from 2015. As announced in the autumn statement, there will be another £1.9 billion between 2018 and 2020 to continue delivering homes at the same rate. We are also reforming planning laws. The autumn statement package contains commitments on releasing land with capacity for up to 150,000 homes and new measures to support up to 133,000 homes.

[Mr Jim Cunningham]

Will the Minister give way?

[Mr Gauke]

I should like to make some progress, as I want to answer the question asked by my hon. Friend the Member for Reading West.

In September, we introduced a new £400 million rent to buy programme, boosting the building of new rental homes to help people to upgrade into home ownership. The programme allows people to rent affordably and to save for a deposit, and then to buy that home or another one. To answer my hon. Friend’s question, more than 66,000 households have benefited from the Help to Buy equity loan and mortgage guarantee schemes, four fifths of whom were first-time buyers.

[Mr Cunningham]

Obviously we want people to be able to own their homes, but there is another facet to this: social housing, either through local authorities or housing associations. What element of the money that the Government are putting into these schemes is going to that end of the market? The drop from 70% to 65% that the Minister mentioned earlier probably relates to people going into the rental market.

[Mr Gauke]

The hon. Gentleman should bear in mind that almost 217,000 affordable homes have been delivered since April 2010. Between 2011 and 2015, some £19.5 billion of public and private investment is going into affordable homes, and we are on track for the highest rate of affordable house building in at least two decades. The Government are delivering on all aspects of how we ensure that we give people the opportunity to have decent housing. These SDLT reforms will give another boost to people wishing to fulfil their aspirations to own the place they live in.

[Jake Berry (Rossendale and Darwen) (Con)]

I apologise to the House for not being here for the start of the debate. I am sure that the Minister will be aware that when the previous Government introduced a new SDLT regime, there were several avoidance schemes, most of which involved sub-selling at below the market value. I applaud the Bill and look forward to its passage through the House. Will he confirm that the anti-avoidance measures under the previous regime will be read over to this Bill to stop the abuse of the tax system?

[Mr Gauke]

I am grateful to my hon. Friend for raising that point, because the Government have addressed this issue fully during this Parliament. A few years ago, SDLT was starting to develop a reputation as a tax that was easily abused—he mentioned one means by which that was done—but this Government have introduced several measures to deal with that. We have seen a substantial decline in the marketing of SDLT avoidance schemes, and the introduction of the annual tax on enveloped dwellings has been successful in discouraging avoidance. He is right to highlight the issue, but we are making changes in the context of an SDLT that is perhaps less leaky than when we came into office a few years ago. That enables us to make our changes, which benefit properties in a way that is, none the less, affordable for the Exchequer. As the Chancellor made clear last week, the policy will deliver a tax bill cut for 98% of people who pay SDLT, and the previous economic distortions in the system have been removed, which benefits the housing market generally.

[John Stevenson (Carlisle) (Con)]

First, I apologise for being late, as I was serving on a Delegated Legislation Committee. I welcome the reforms for the residential market, but do the Government have any intention to introduce similar provisions for the commercial market?

[Mr Gauke]

I am grateful to my hon. Friend for raising that point, which we debated briefly last week. Particular issues with the residential market meant that we needed to address that quickly, and some of the pressures to reform the system applied particularly to the residential market. Clearly, any Government will want to keep this matter under review, so I would not want to rule out looking at the commercial market. However, the imperative was to press on for the residential market, and no doubt commercial property and SDLT is a matter to which the Government will wish to return in the future. I know that he welcomes these reforms, and I should point out that more than 99% of transactions in his constituency will benefit from our changes.

[Jake Berry]

What will be the SDLT position when there is a mixture of residential and commercial property? How will a shop with a flat above it, for example, be treated under the new SDLT regime?

[Mr Gauke]

The residential property would be considered under the new residential regime, and an evaluation would be needed to distinguish between the commercial and the residential premises.

This reform will improve the fairness and efficiency of the tax system. It will make a real, tangible, positive difference to the lives of people up and down the country, and I hope that hon. Members will think fit to give the Bill a Second Reading.