David Hannah (pictured) is principal consultant and founder at Cornerstone Tax
No, its not another Brexit article but rather the real story behind the recently announced, staggering drop in Stamp Duty Land Tax (SDLT) receipts.
Figures issued by HM Revenue & Customs in October announced £11.9bn as the UK’s SDLT haul in the most recent tax year. It might sound like a lot, but it’s actually a 7% drop on the previous year’s total.
It’s the largest drop since the recession, only this time there is no financial crash to blame.
It’s more or less acknowledged by all that a key driver behind the fall in stamp receipts is that the tax is, for most, an eye-wateringly expensive and frequently debilitating factor in moving to a new house.
The continuing trend to remain where we are and extend or improve our existing property is clogging up the market and leaving no room on the ladder for new entrants; a matter blamed by certain lobbies on landlords and used as an excuse to penalise them with even higher taxes.
When a house move costs significantly more than an extension is it any wonder that UK taxpayers are sitting on their hands? Affordable upward mobility in the UK property market now only exists to many in the form of a loft conversion.
A decline in revenue and activity across a tax that was previously a revenue cash cow demonstrates the known economic argument that higher taxes lead to lower overall inflows.
Known as the ‘Laffer Curve’, this law has been proven time and time again in economies across the world.
Amid the relentless clamour to blame everything on Brexit, mortgage levels and first time buyers – it’s about time we started making more noise around the negative impact of SDLT itself.
SDLT has long been the subject of ‘reform’ by politicians that use it as a political football.
Having undergone more amendments since inception than any other tax of its kind, it now resembles Frankenstein’s monster. It takes an expert to decipher and understand all of SDLT’s legal nuances, exemptions and reliefs.
This is itself the main driver behind professional errors among mortgage brokers and solicitors when estimating payable SDLT on behalf of clients. Our sources at HMRC say that SDLT refunds are running at around 750 per week. A conservative estimate would translate that into a monetary value of circa £600m a year.
To help mortgage advisors generate more accurate estimates of SDLT, Cornerstone recently launched STAMP Check. Believe it or not, this is the first independently created digital tool in the private sector to accurately assess SDLT.
Not only does it serve to de-risk professional SDLT estimates, reducing regulatory and reputational exposure for mortgage advisors, it also means that clients are more likely to avoid an over-estimate on the SDLT applicable to their house move.
How can this help the property market? Well, put simply, average home buyers are less likely to move if the SDLT estimate provided by an advisor is higher than it should be.
To any average household, a difference of £10 – 20,000 at the beginning of the mortgage application process could easily lead to them remaining and investing in that loft conversion instead of a new home.
Government must also take urgent action to stimulate activity by reducing SDLT rates, simplifying the tax’s structure and ensuring that the reformed system provides safeguards to prevent overpayments, rather than only looking for underpayments.
However, anyone familiar with the pace of government and HMRC respectively may bet on pigs flying first.
What we can do collectively across the mortgage, legal and tax sectors is make an improved effort to provide people with SDLT accuracy. Part of that solution is the continued investment in tools that help professionals have confidence in their calculations.
Doing so will undoubtably tip the balance for many of the consumers who want to move to a bigger home, but faced with having to budget for an overestimated SDLT bill at the beginning of the process, decide to remain where they are instead.