On Tuesday HMRC released figures which showed a 10% decrease in stamp duty receipts from residential property over the last year. The tax collected fell by more than £900m in 2018-19 to £8.4bn which marks the largest drop since 2008 when the financial crisis drove down house prices and follows almost 10 years of steady increases. This is due to fears from Brexit continuing to hit the housing market, as house price growth has slowed to the lowest level in years at 0.7% according to the latest figures from the Land Registry.
HMRC said that the decline could be related to the new introduction of tax breaks for first-time buyers and the devolution of stamp duty to Wales. These new tax breaks exempt potential home owners from stamp duty if the property is valued at £300,000 or less and charges a discounted 5% rate on the remaining value of properties worth up to £500,000. However, these changes actually account for just 3% of the drop in stamp duty collected from land and property transactions. Experts have said that many are reluctant to pay high rates of tax if the market will mean that they get less from the sale of their homes than expected. Others say that the 3 percentage point surcharge on second homes was to blame, as this catches out families moving home but yet to sell their old property. They are forced to pay the additional rates and apply for a refund within 36 months. The amount that the government have generated from this surcharge has fallen by £250m since 2017-18, a 6% drop.
Another important factor to consider when looking at the subdued housing market, aside from Brexit, is imminent stamp-duty reform. The latest HMRC figures will fuel longstanding calls from the property sector for the government to cut stamp duty. This is one of the few tax measures that can be changed with immediate effect, because it does not require legislation, in order to boost activity in the housing market and potentially cushion the economic pain of a no-deal Brexit. Boris Johnson called for the duty to be cut earlier this year, suggesting that sellers should pay the tax only for his chancellor, Sajid Javid, to deny plans for such drastic changes. Such uncertainty means that property sales are less likely to complete whilst buyers wait and see whether Brexit, a general election, or new policies result in stamp duty reform.
FKGB Accounting Ltd are on hand to assist with any queries regarding property taxes and investment in the UK housing market. Please contact us and we would be delighted to help.
