Noel Meredith, executive director of United Trust Bank, comments on changes to the Stamp Duty Land Tax announced in the chancellor’s Autumn Statement.
The majority of homebuyers will welcome this news as the new Stamp Duty Land Tax (SDLT) structure will lower the cost of house purchase for most people. However, developers will have mixed views.
According to the Land Registry the average house price in England and Wales is just over £177,000 and someone buying at this price will be £730.00 better off under the new charging structure than with the old one. Even in London, where the average house price is just over £460,000, buyers will be £800 better off on a purchase at that price. In fact you’d have to be buying at over £937,500 for the new structure to have a detrimental effect.
The most beneficial change comes from the removal of the ‘slab’ approach to calculating SDLT where an increasing percentage was charged on the whole amount once certain thresholds were reached. This had the effect of builders pricing at just under the thresholds or pricing well above. For example, the SDLT levied on a property at £501,000 was £20,040 compared to £14,970 on a property priced at £499,000. The new structure removes the need for pricing to be influenced by the SDLT thresholds.
Those who will suffer most from this change are the wealthier buyers and the high end developers serving that market. Someone buying a new home at £3.5m will pay an extra £88,750 in SDLT under the new regime and this will be a further burden to some developers already challenged by non-committal buyers uncertain about the possible imposition of a Mansion Tax. I expect agents and developers to be busy handling price renegotiations from those buyers unwilling or unable to find these extra sums. In the worst cases sellers will lose sales or they will have to agree a lower price, effectively footing the extra SDLT bill on their buyers’ behalf.
Developers welcome changes that stimulate demand or make purchasing easier. However developers also pay SDLT when they acquire sites and even sites for relatively modest numbers of new houses can cost millions of pounds. For more expensive sites this will create higher costs for many developers which will have to be paid for in the form of higher house prices or land owners will have to accept less for their development land. I expect negotiations for land to become more complex and time consuming and in the short term supply may be constrained which will do nothing for the delivery of new homes! In the longer term the market will have to adjust.
Governments seem to think that house building is a source of easy revenue. SDLT paid on site purchases, community investment levies, Section 106 costs, the provision of affordable housing etc. these are all means by which developers are squeezed. The Government then gets another slice of tax from purchasers as the houses are sold. With so many costs and complications associated with house building it’s no wonder we don’t produce the volume of new homes we need.
The changes to SDLT will undoubtedly add more fuel to the debate about the taxation of higher value properties. Initially this might have been interpreted as the Government’s answer to a Mansion Tax but it could actually be the first of a double hit on wealthier home owners. The Labour party has supported these changes to SDLT but appear to still want an annual ‘Mansion Tax’ on top. So whilst these changes are good news for most home buyers, they could make an already softening market even more challenging for high end developers.
