Leading business and financial adviser Grant Thornton has stated this week that reports of plans by the Treasury to suspend stamp duty land tax (SDLT) for all home buyers could help kick-start the ailing property market, but would result in the Treasury having to fund a tax short fall of up to GBP7bn from other sources.
However, if payment of SDLT was merely to be postponed the loss to Treasury coffers would only be temporary and home buyers would still need to pay SDLT at a later date.
Latest figures show that residential property transactions contributed GBP6.4bn out of a total GBP9.6bn (includes non-residential transactions) in SDLT receipts to the Treasury for the year 2006/07.
Karen Campbell, head of Stamp Taxes at Grant Thornton, welcomed the fact that the Government is considering using the tax system to revive the property market and economy. However, she noted that if reports of a complete suspension - rather than postponement - of SDLT are to be believed then the Treasury would most likely recover the lost SDLT receipts through alternative taxation - a difficult prospect with an upcoming election and the current squeeze on personal finances of UK individuals:
"SDLT in no small way hinders millions of potential home-owners from jumping on the property ladder and an 'SDLT holiday' could be just the move to put more liquidity into the housing market during the current economic slump. However, the Government will want to protect its tax revenues so it remains to be seen whether the proposal will mean home buyers are completely exempt from paying SDLT or will have to pay it at a later stage," she says.
Campbell goes on to state that:
"One can only guess what the Treasury might do, but a possible option would be to introduce a nil-rate band of stamp duty for homes under GBP250,000 and introduce a top rate of 5% SDLT on homes over GBP1,000,000, while having a series of percentage rates of SDLT increasing in steps for homes between GBP250,000 and GBP1,000,000. This might enable the Treasury to recoup the losses from the nil-rate through the increased SDLT on more expensive properties."
Campbell says it is interesting to note that Stamp Duty, which is a strong
revenue earner for the Treasury, was suspended from December 1991 for nine months
when the property market was experiencing similar problems.
In the past 10 years, Stamp Duty and SDLT on residential property has contributed some GBP31.5bn to Treasury coffers.
However, having steadily climbed since 2000, it is expected that SDLT receipts will fall in this latest year owing to a reduction in sales of both residential and commercial property.
Furthermore, the Treasury is expecting total stamp receipts from Stamp Taxes (of which SDLT is a part) for 2008/09 to be lower than the previous year, estimating a total tax take from stamp duties for this year (08/09) of GBP13.4bn compared to GBP14.1bn in the year before.
Stamp duty is currently paid by residential property buyers, at 1% for houses between GBP125,001 to GBP250,000 (GBP150,001 to GBP250,000 in disadvantaged areas), 2% for GBP250,001 to GBP500,000, 3% for GBP250,001 to GBP500,000 and 4% for GBP500,001 or more..
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