Stamp duty

Radical solution proposed to switch stamp duty cost from buyer to seller

Boris Johnson slammed stamp duty earlier this week as a barrier to homeownership, and it’s raised the question of what an alternative to the “absurdly high” tax might be…

Stamp duty receipts raked in just under £2bn for the Treasury during the second quarter of this year, but the tax has been in the headlines recently as a major bugbear for the UK’s housing industry in need of reform.

Former foreign secretary Boris Johnson has been particularly vocal, saying that stamp duty is responsible for “freezing whole chains of purchases”, and is a major reason that homeownership levels in the UK, particularly among younger generations, continues to decline.

However, while the government has brought in stamp duty relief for first-time buyers purchasing properties up to the value of £300,000 (and they pay 5% on the value of homes worth between £300,000-£500,000 to take the London market into account), accountancy body the Association of Accounting Technicians (AAT) has come up with another proposal – switching the stamp duty payment burden from the buyer to the seller.

Benefits of the seller paying stamp duty

According to the AAT, such a move would have a number of benefits, including removing all first-time buyers from any stamp duty liability, but without it costing the taxpayer money. The bill for the current scheme apparently comes in at around £560m in 2018/2019, going up to £670m a year by 2021/2022.

Phil Hall, AAT head of public affairs & public policy, said: “AAT has long recommended switching stamp duty liability from the buyer to the seller which would lead to a stamp duty reduction for every house buyer in the country. It would also eliminate stamp duty for all first-time buyers without having to waste £670m a year on the latest subsidy scheme which came into force for first-time buyers last November.”

Other plus points touted by the AAT include helping people move up the property ladder as the home being sold will require less stamp duty than the larger home being purchased; increasing transaction levels as prospective homeowners could increase; making stamp duty fairer; and contributng to addressing the issue of intergenerational fairness.

The negatives

According to the AAT, homeowners looking to downsize, which tends to be older generations with the most property wealth, would be the only households who could end up paying more stamp duty as a result of this proposal.

The AAT added: “In the majority of cases, although not all, downsizers will have little or no mortgage to pay and will have significant equity. Downsizers are therefore likely best placed among all homeowner types to pay a little extra, certainly better placed than first-time buyers who are typically the younger generation.

“It could also be argued that once liability has been switched and the system has been in place for a few years, downsizers are likely to have benefited from the seller pays regime to have got to where they are on the ladder.”

However, if it might deter older homeowners from selling up their larger properties in order to downsize, it could mean that number of homes suitable for growing families and upsizers begins to dwindle.

Could it affect house prices?

Presumably, by switching the burden from buyers to sellers, those looking to sell their property might in some cases be tempted to keep their asking price down, or accept a lower sale price, because the lower the sale price the lower the stamp duty bill. Over time, this could serve to curb the country’s house price rises, but whether this is a positive or negative outcome depends on your position in the market.

What about buy-to-let and property investors?

The AAT says that its proposals wouldn’t apply to buy-to-let properties or second homeowners, who would still continue to pay the same rate on purchasing (rather than selling) any investment properties, as well as the existing 3% surcharge.

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