MPs call for tapered end to stamp duty holiday
MPs debated an e-petition titled Extend the Stamp Duty Holiday for an additional six months after 31st March 2021, which has been signed by more than 140,000 members of the public, on Monday 1 February. There was unity among MPs in the debate in agreeing that stamp duty land tax (SDLT) needs a longer-term look, although this was not the specific subject of the debate. A number of MPs spoke in favour of a tapered winding down of the ‘holiday’.
As part of its Plan for Jobs published in July 2020, the Government has temporarily increased the nil rate band of residential stamp duty, in England and Northern Ireland, from £125,000 to £500,000. This applies from 8 July 2020 until 31 March 2021 and cuts the tax due for everyone who would have paid stamp duty.
A couple of MPs spoke in favour of a proportional property tax to replace stamp duty, council tax and the ‘bedroom tax’, as promoted by the campaign group Fairer Share. The campaigners suggest a simple flat rate of 0.48 per cent on the current value of your property. The tax would be paid by property owners rather than tenants, payment could be deferred, exemptions on second homes and undeveloped plots would be scrapped and annual and automated valuations conducted for all properties.
The debate took place in a meeting of the House of Commons Petitions Committee. This committee looks at both e-petitions submitted on the petition.parliament.uk site and paper petitions presented to the House of Commons. It can ask for more information from petitioners, the Government, or other relevant people or organisations, write to the Government or another public body to press for action on a petition, ask another parliamentary committee to look into the topic raised by a petition, and put forward petitions for debate in the House of Commons.
Committee Chair Catherine McKinnell, Labour, opened proceedings by explaining that debates on e-petitions normally take place in Westminster Hall. Because of the suspension of Westminster Hall sittings due to COVID-19, the Petitions Committee has decided to hold sessions itself as an alternative way of considering the issues raised by e-petitions. She was pleased that both a government minister and an opposition spokesperson were present to respond to the debate.
Conservative Elliot Colburn was the first speaker on the topic. He questioned whether SDLT has a future, given that it often acts as a barrier to home ownership. The stamp duty holiday helped to keep fluidity in the housing market and has helped contribute to confidence in the market, even during the pandemic, he said, though he accepted there is no definitive data on its impact. But many people could face a hefty tax bill that they cannot afford because their sales will not complete by 31 March – which is made worse because lenders, solicitors and estate agents say they are unable to keep up with demand for completion by that date. If prospective buyers who are dependent on completion by the 31 March deadline find themselves unable to do so, the result will ‘inevitably’ be an unprecedented volume of demand for withdrawals, disrupting chains and the wider residential purchase market on a ‘massive scale’. Lender Paragon told him that 51 per cent of cases (prospective sales) could collapse if the March deadline is not met. Colburn suggested that it is unfair that people will no longer qualify for the tax break when it existed when they started looking for a property.
Colburn suggested the Government could reset the deadline to a new arbitrary date or allow only transactions that began before 31 March to be eligible, or it could set a new date and begin to taper off the relief by eligibility of house price each month. It could even maintain the stamp duty threshold of £500,000 permanently. He said a phased and tapered winding down of the relief would probably be the preferable option.
Kevin Hollinrake, Conservative, who founded the Hunters chain of estate agents, suggested the fairest way is to allow some of those who are at a sufficiently advanced stage— for example, they have a mortgage offer by, say, the end of February— more time to complete their sale. This is better than choosing another cliff edge date. Stamp duty is a transactional tax, which is a deterrent to economic activity, he opined. He called for a ‘proper reform of property taxes, including council tax, and favoured a ‘proportional property tax’ that would abolish stamp duty and change the way we tax properties.
Greg Smith, Conservative, said the 31 March cliff edge will have a ‘devastating’ impact on the residential property market, which is likely to stall at a time when it really should be at its busiest. In his Buckingham constituency, modelling by TwentyCi found that 231 families who agreed a sale in December last year will miss out on the stamp duty saving, and that ‘that number will continue to grow through the first few months of 2021. In general, those at the greatest risk of pulling out are hard-working families on low and middle incomes, he claimed. Extending the stamp duty holiday will protect businesses in the wider economy which are reliant on home movers’ spending. The best way to raise revenue is to stimulate the economy through tax cuts, not shut down opportunities through tax rises, he said, adding that he wants a serious overhaul of this tax.
Matthew Offord, Conservative, said older people have been helped to downsize by the SDLT holiday, freeing up family homes for the next generations to move into.
Ben Everitt, Conservative, said whatever happens, the approach needs to be phased and tapered. Everitt called on the Chancellor to consider the merits of a short extension to the stamp duty holiday until we are through the most acute phase of this crisis, saying this would be warmly welcomed by movers, by the sector and by all the other aspects of the market. He said: “We need to have an exit strategy from stamp duty land tax because it is a dangerous and damaging tax in so many ways. It disincentivises economic activity and is a brick as regards social mobility.” He favours a proportional property tax.
Catherine West, Labour, said now might not be a good moment to start completely changing the way we look at tax and spend, and tapering off or looking at an approach around the edges is probably best.
Diane Abbott, Labour, called for a very specific extension to the stamp duty holiday for the people of Hackney because of a cyber-attack on Hackney Council that has affected the planning department. There would be no fiscal consequences beyond what the Treasury has always accounted for, she claimed.
Janet Daby, Labour, said the stamp duty relief does not just help first-time buyers. We have seen no indication of the economic need for this measure to change, she added. The property market is one of the key indicators of our country’s financial success, she said.
Barbara Keeley, Labour, called on the Government to act to ensure that people who have made a commitment to buy a house in the reasonable expectation that they would not have to pay stamp duty are not hit with an excess charge. Keeley suggested a ‘retrospective extension’, to allow anyone who has already had an offer accepted to be exempt from stamp duty even if they are unable to complete by 31 March.
Lib Dem Sarah Olney said stamp duty land tax is a regressive and poorly designed tax, falling as it does on the buyer and not the seller. In contrast to many speakers, Olney argued that to continue to boost the property industry at the expense of those that have been forcibly closed would be ‘unjust’. She urged the Treasury to make allowances for transactions that have already commenced, but added that “to commence a stamp duty holiday just to avoid a cliff edge would deprive the Treasury of much-needed funds at a time when there are many extremely pressing calls on our public finances.”
Front bench responses
Labour’s Shadow Exchequer Secretary Abena Oppong-Asare said the design of the SDLT holiday policy represents an unnecessary subsidy for second homeowners. It is not only prospective buyers of new build homes who are affected by the March cliff-edge problem. She cited Landmark Information, Purplebricks, Simplify and the Mortgage Advice Bureau explaining that, as of March 2020, it took on average six months to complete a transaction—from registration with an agent to completion. That timescale is likely to have increased during the pandemic, as it will take longer to complete any physical part of the buying process. She said: “With the relief lasting less than nine months, we are in the perverse situation whereby much of the benefit might have gone to people whose home purchases were already under way when the outbreak hit.” Extending the current scheme will be welcomed by some, but Labour has concerns that that would create a further cliff edge down the line ‘resulting in more money being spent on a scheme whose design we believe has fundamental flaws’. What does the Tax Minister have to say to those people who can afford their starter/builder home only on the basis of the stamp duty relief, but who will fail to complete by the end of March? she asked.
Speaking for the Government, Tax Minister Jesse Norman said the stamp duty holiday was a response to, during the peak of the first lockdown, in April last year, residential property transactions dropping by more than 50 per cent, compared with the month before. The holiday is not the only aspect of the market that has driven sales, but it undoubtedly helped to incentivize people to move home. Norman claimed it was the time-limited aspect of the measure that drove increased demand.
The minister said that while he could “absolutely understand people’s frustration and the frustration of colleagues regarding the forthcoming deadline on the stamp duty land tax holiday” he could not comment on tax policy outside a fiscal event. The Government will continue to listen carefully to representations from the industry and from those who are themselves planning to buy or sell a property, he promised.
Elliot Colburn also responded to the debate. He identified “a rare moment of unity among three political parties in highlighting problems with a tax. I suspect that we have very different ideas about how to reform stamp duty, but that was a rare moment of unity in which we seemed to agree that stamp duty land tax needs a longer-term look. However, as I said in my opening statement, I appreciate that this might not be the moment—in the middle of a pandemic—that the Treasury wants to do that assessment.”
The full 1 February 2021 session is here.
By Hamant Verma