Stamp Duty Land Tax Bill

Shabana Mahmood Excerpts

Monday 12th January 2015 Commons Chamber

[Mr Gauke]

I am grateful for that observation from my right hon. Friend and constituency neighbour. I know well how the issue of SDLT in general must be relevant to many of her constituents. On the specific point about HS2, the Government remain to be persuaded that SDLT is necessarily the right measure for addressing the concerns that she identifies and on which she provides an articulate voice in defence of her constituents and others affected by the project. We remain to be convinced, but I know that she will continue to make her argument, and we will continue to look at it carefully. As I said, however, we are not yet convinced that reform of SDLT, or an exemption or relief, would necessarily provide the right support for those with properties affected by HS2.

Clause 1 substitutes a new table A setting out the new tax rates and bands applying to a transaction consisting wholly of residential property and amends the calculation rules for these transactions so that each rate of tax applies only to that part of the consideration that falls within the relevant band. The total tax due is then the sum of the amounts for each band. The new calculation rules extend to linked transactions—those that form part of a scheme arrangement or a series of transactions between the same buyer and seller. In this case, SDLT applies to the aggregate consideration for all the linked transactions.

The new rules do not apply to transactions to which table B in section 55 of the 2003 Act applies—transactions or linked transactions consisting wholly of non-residential or a mixture of residential and non-residential property. The clause introduces the schedule, which makes consequential amendments to SDLT legislation to take account of the reform. The main changes are to the method of calculating the tax due under certain SDLT reliefs. The first relief is for statutory leasehold enfranchisement, where leaseholders of flats club together to buy the freehold of their block. This relief formerly operated by setting the rate of SDLT according to the amount paid for the freehold, divided by the number of qualifying flats. Under the new arrangements, first we divide the amount paid for the freehold by the number of qualifying flats and calculate the amount of tax due on that sum. We then multiply that amount of tax by the number of qualifying flats in order to arrive at the total tax due.

Secondly, a similar change is made to relief for purchasers of multiple crofts from a landlord by a crofting community body under the crofting community right to buy scheme. This relief only applies in Scotland so will only be relevant until 1 April 2015, when SDLT in Scotland is replaced by the devolved land and buildings transaction tax.

Finally, a similar change is made to multiple dwellings relief, which applies to purchasers of more than one dwelling in either a single transaction or linked transactions. This relief was previously subject to a minimum rate of 1%. Under the new rules, the amount will be equivalent to 1% of the chargeable consideration given for the dwellings, which in practice gives the same result.

Right hon. and hon. Members raised several important points on Second Reading. I would like to take this opportunity to explain in a little more detail the Government’s position on some of those issues. First, it has been asked why we have chosen not to apply the new rules to non-residential—commercial and agricultural —property as well as to residential property. That point was raised just now by my hon. Friend the Member for St Albans (Mrs Main). As I said, the market for non-residential property is very different from the market for residential property. For example, non-residential properties have a higher value on average and many are held on market rent leases granted for a small or no premium. At this time, the Government do not feel it appropriate to make changes to non-residential SDLT, although all taxes are kept under review as part of the policy making process. Any change to non-residential SDLT would have to be considered very carefully.

Some concern has been expressed about the possibility of purchasers avoiding SDLT by designating the property as either residential or non-residential in order to obtain a more favourable result. What constitutes residential property is set out in the legislation. Property can be either residential or non-residential, which is a matter of fact. There is no option, as it is has been suggested there is, to flip property between one and the other. I can reassure the Committee on that.

Finally, it has been suggested that the highest rate of tax payable under the new rules might reduce the disincentive to envelope residential property provided by the 15% higher rate SDLT charge, which applies to purchasers of residential property by a company or other non-natural person. The highest marginal rate of SDLT for the purchase of residential properties above £1.5 million is now 12%. However, SDLT is charged at 15% on the whole value for residential properties bought through corporate envelopes for more than £500,000. We are not proposing to make any changes to the 15% higher rate charge. However, in the autumn statement, we announced that the annual charges of the annual tax on envelope dwellings—ATED—would increase by 50% above inflation for the chargeable period 1 April 2015 to 31 March 2016 in order further to discourage the use of enveloping. The Government keep all taxes under review where individuals continue to hold property within corporate wrappers. They should be prepared to pay their fair share of tax.

These reforms to SDLT will remove the previous economic distortions in the system, benefiting the housing market and improving the fairness and efficiency of the tax system. They will give another boost to people looking to fulfil their aspirations of owning the place they live in and will make a real tangible and positive difference to the lives of people up and down the country.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

It is a pleasure to serve under your chairmanship, Mrs Riordan.

I thank the Minister for his introduction to clause 1 and schedule 1. Let me confirm from the outset that we support these measures, as we did in the previous two debates on the Bill. We will do so again today. As I say, we have already had a couple of debates and it is a small Bill, so many of the issues have been debated thoroughly before. I am grateful to the Minister for dealing with some of the questions that arose on Second Reading. I have just a couple of points on which I would like to press him, and I will be grateful to hear his response in his summing up.

First, can the Minister provide us with an update on HMRC’s handling of the queries that arose when these measures were announced? Can he confirm the number of queries that HMRC had to deal with, clarify the nature of the queries that the public or their advisers raised and confirm whether all outstanding queries have been dealt with?

Secondly, let me press the Minister a little further on the revenue. I put some points to him on Second Reading about the expectations of revenue, but that matter has not been fully covered by the responses we have received. The Minister knows that these measures are expected to cost £395 million in 2014-15, rising to £760 million in 2015-16. Research by Lonres and Dataloft has found that more homes changed hands on the day of the autumn statement than on any other day in the past decade, so one in six of all homes sold in London’s most expensive areas in the last three months of the year changed hands on 3 December. The research by Lonres and Dataloft estimates that, as a result, buyers saved £9.4 million in taxes. Is that in the order of the behavioural change that was expected, as modelled by the Treasury in its costings? I am sure the Minister will repeat that they have been independently certified by the Office for Budget Responsibility.

I should like to know whether the number of transactions and the cost in Exchequer revenue after the announcement of the measures in the autumn statement are along the lines that the Government were expecting. As the Minister knows, the Office for Budget Responsibility, which applies a rating system to the “certainty” of costings, has said that it considers the costings to be medium to high risk. How confident is he about the numbers, and about the extent of the behavioural change that is expected?

[Alok Sharma (Reading West) (Con)]

I am delighted that the hon. Lady and her party welcome measures that are intended to help people who aspire to own their homes. How does she think this policy contrasts with a policy of an annual property tax which may force some people out of their homes if they have to pay it?

[Shabana Mahmood]

I think that the Bill shows that the Government have accepted that properties with a very high value are under-taxed. The hon. Gentleman alluded to our proposals for a mansion tax, which would help to pay for our NHS commitments. Our measures will not force anyone out of their homes, because, as we have pointed out, a deferment option will be available to basic-rate payers. I am afraid that that was a bit of party political scaremongering on the hon. Gentleman’s part.

[Alok Sharma]

The hon. Lady mentioned the mansion tax. My constituents fear that the threshold might start at, say, £2 million, and then drop very quickly to levels applying to properties that ordinary hard-working taxpayers are aspiring to own. The Labour party has done that in the past. Will the hon. Lady tell us what would be the threshold for her so-called mansion tax?

[Shabana Mahmood]

I am delighted that the hon. Gentleman has given me an opportunity to tell his constituents that their fears are entirely misplaced. Anyone who publishes literature suggesting that the threshold will lower is doing nothing more than scaremongering. As we have made clear, the number of high-value properties will not increase, because the indexation of the threshold will be in line with the average rise in value for the highest-value properties. That means that the number of properties caught by the tax is not expected to increase. I am, as I say, delighted that the hon. Gentleman has given me an opportunity to reassure people who are currently living in properties that are below the £2 million threshold that they will not be caught by our proposed mansion tax.

The Minister explained that the changes in the Bill would not apply to commercial property, and I am grateful for his clarification of the Government’s thinking. However, I should like to press him a little further on a couple of matters. First, one of the reasons why the Government were so keen to proceed with stamp duty changes applying to residential property was their anxiety about labour mobility. Has any thought been given to the impact on business mobility of maintaining the slab structure for commercial property transactions?

Secondly, changes will come into effect later this year in Scotland, where stamp duty is now a devolved matter. The Scottish Government will introduce a land and buildings transaction tax, which will apply to both residential and commercial properties. Have the Minister and the Treasury considered whether there is a risk that England might be disadvantaged, particularly in relation to business mobility? Does the Minister agree that the differential in the treatment of commercial property in Scotland and England is not ideal, and is the Treasury taking account of that aspect of the changes?

Finally, I want to raise a point that has been highlighted by the Chartered Institute of Taxation. It noted the different treatment given to definitions of residential dwellings, and observed that clause 1(3) inserts new subsection 1B:

“If the relevant land consists entirely of residential property and the transaction is not one of a number of linked transactions, the amount of tax chargeable is”,

and so on. The CIOT notes that various amendments to the tax system, including the introduction of the annual tax on enveloped dwellings, or ATED, have led to subtly different definitions of “residential” property for the purposes of SDLT. In schedule 29A to the Finance Act 2004 there is different treatment for investment-regulated pensions and potentially for capital gains tax, capital gains tax-related ATED, business investment relief for non-domiciliaries, capital allowances and VAT.

The Minister and I have had a number of debates when discussing other Bills about the different treatment given to particular phrases in employment law as against taxation law. There seems to be a nuanced difference in the way residential dwellings will be identified in these different elements of different taxes. I am concerned that inconsistencies are creeping in, which lead to complexity and create more work for lawyers. They will welcome that, of course, but ordinary taxpayers will not. It would be helpful if the Minister could give us his comments on those differences in definitions and say whether the Government are considering clarifying that.

[Ian Swales (Redcar) (LD)]

I will keep my remarks brief. I have spoken in each previous debate and do not have a great deal to add. My party very much supports these measures and, as I have said in previous debates, dealing with the slab system that we had and the consequent cliff edges and removing the incentives for strange behaviour and sub-optimal activity has to be the right thing to do.

I have only one point to add, which partly follows on from the remarks of the right hon. Member for Wokingham (Mr Redwood) and the assessments of the Office for Budget Responsibility. I would have thought that the taxation of a fixed asset transfer like this, with the certainty that that implies, would mean this is a very low risk method of changing a tax system, but if the OBR regards it as medium to high risk, and if the right hon. Gentleman is suggesting there may be more complex effects that I have not understood, I would like the Minister to clarify whether I am missing something. I would have thought this was a very straightforward way of raising taxes in a highly certain manner—and certainty is, of course, one of the hallmarks of a good tax system.

I will not detain the Committee any longer. Our party supports these measures. They affect 98% of the population favourably, and, broadly speaking, the other 2% are millionaires, and therefore those with the broadest shoulders. I am pleased that through this Bill this Government have found yet another way to help deliver a small amount of redistribution, with the pain felt by those with the broadest shoulders. The support for it is universal in my constituency, as I think everybody will be a winner. Overall, these measures will lead to a more liquid housing market and therefore a stronger economy, and they also make the system fairer.

--- Later in debate ---

[Shabana Mahmood]

I thank the Minister and echo his thanks to Members from both sides of the House for the efficient debates we have had on the Bill, which, as he noted, has had support from across the House. He is right that the slab structure of SDLT was very unpopular. It was subject to regular criticism, and Ministers and shadow Ministers have long been lobbied for change. The Institute for Fiscal Studies described it as

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

so it is good to see some change, especially given the huge increase in house prices that led to the burden of stamp duty rising significantly.

I am grateful to the Minister for answering the questions I put to him, particularly those on dealing with the differential treatment of commercial and residential property. Sometimes the way in which the Minister says, “We keep all taxes under review,” hints that some change might be in the offing or that no change will happen at all on his watch. I could not work out which applied today, so at the very least I am sure he has made his officials very happy.

I welcome the measure. Notwithstanding the figures on house building that the Minister gave at the tail-end of his speech, I place on record our continuing concern that the Government have not done enough to deal with the biggest housing crisis for a generation. We need a much more active approach to housing supply, rather than dealing with demand-side issues, but those are debates for another day. The changes to stamp duty are welcome and we are happy to support them.