Autumn Budget: What if the SDLT levy was scrapped?
With Rachel Reeves’ first Budget Statement only two months away, speculation is mounting about what she will announce in what has been billed by PM Sir Kier Starmer as a 'painful' October Budget. But what does this mean for landlords?
NRLA Policy Director Chris Norris is exploring the impact of a range of potential tax changes the government could introduce and looking at how they would affect you and your business. This week we ask what if the SDLT Levy were scrapped?
I have a confession. I don’t like Stamp Duty Land Tax (SDLT) and not just in the sense that nobody much likes paying tax. I struggle to find any redeeming features in SDLT or very much logic in the way that it is applied.
Here are a few of the complaints I have about SDLT:
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It has a silly name. Stamp Duty was effectively abolished in 2003, yet when the government of the day created a land transfer tax it decided to retain the archaic name.
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Despite not actually being a ‘stamp duty’ in the traditional sense, HMRC continued to physically stamp documents for almost two decades after its introduction.
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Its bands fail to reflect house price inflation, capturing far more transactions than ever intended and at a higher rate; and perhaps most importantly
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It discourages transactions, tying up property and reducing mobility.
None of which is particularly landlord specific, apart from the fact that landlords by definition buy more properties and therefore pay more SDLT. I just wanted to make clear exactly how much I (personally) dislike SDLT.
What is of particular interest to landlords is the fact that anyone buying a property, who already owns at least one other, pays a higher rate. This is the higher rates on additional dwellings or HRAD, more often referred to as the additional property levy.
For the avoidance of doubt, I have no particular views on whether people buying a holiday, or second home, should pay a higher rate of tax on that purchase. I can absolutely sympathise with campaigners priced out of their local area by second homeowners leaving property empty for much of the year. It effectively takes stock out of circulation.
What I find questionable is applying the same measure to purchases that look to increase access to homes and increase the reply of rental property.
Osborne’s crusade
This levy was introduced in April 2016 as part of:
“…the government’s commitment to supporting home ownership and first-time buyers”
In other words, it was part of, then Chancellor, George Osborne’s crusade against the private-rented sector and a direct attempt to dissuade investment in properties for private rental. One of the stated aims was to increase the number of owner-occupied properties and “reduce the volume of affected transactions”.
There was no ambiguity, the Chancellor wanted to stop landlords from buying properties by making it more expensive. The Treasury did not forecast significant revenue because it was intended to change the behaviour of investors rather than raise money.
At the time around 10 per cent of residential property transactions were expected to be subject to the new higher rates. The goal was to reduce this proportion, replacing landlord transactions with owner-occupier purchases.
Eight years on, the additional rates are unchanged so presumably it has been a resounding success.
Wrong.
In financial year 2022-23 additional dwelling transactions accounted for 23 per cent of relevant transactions, which was actually down on the previous year, demonstrating (arguably) a complete policy failure. Rather than driving down additional dwelling transactions, during the first six years of HRAD’s operation they had more than doubled as a proportion of property purchases.
Given the change of government this year, the new Chancellor has a great opportunity to reverse the policy and call out her predecessor’s incompetence. It must be a win, win surely.
Likely impacts
So, what would happen if Rachel Reeves scrapped the higher rate of SDLT for additional dwellings?
The short answer is, it would release more than £2.5 billion back into the economy each year, but perhaps the more pertinent question should be, why won't the Chancellor scrap HRAD? Because there is no speculation that she is about to, and frankly it’s fairly unlikely that she will.
The main reason that HRAD is probably here to stay is that, as well as making up 23 per cent of transactions it makes up 49 per cent of residential receipts.
Moreover, despite only making up around one quarter of transactions valued below £250,000, it makes up 90 per cent of residential receipts in that band.
In 2022-23 total HRAD receipts totalled £5.725 billion, of which £2.620 billion came from the additional three per cent element.
So, on the face of it, scrapping HRAD would deprive the Exchequer of about £2.6 billion, however the impact of such changes is rarely, if ever, that simple.
Ultimately, tax revenue is dependent on economic activity and the best way to encourage activity is to put money in the pockets of individuals and businesses with the confidence to invest.
When the NRLA commissioned consultancy Capital Economics to model the impact of a range of financial measures on the PRS it reported that removal of the additional property levy would result in landlords investing in an additional 890,000 rental properties over a ten-year period associated with increase in net tax revenue of around £9.6 billion.
That could pay for around 53,000 new social homes, which according to Shelter’s Brick by Brick report would net the Government approximately £4.4 billion in benefit savings, positive health outcomes, taxes on construction income etc.
In essence, reducing the rate for each transaction would encourage more activity, and provide more rented homes, against which landlords would pay more income and corporate taxes (to the tune of £12 billion over ten years).
That means:
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The Exchequer makes more money
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Landlords’ costs go down
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More investment in homes, private and social
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Tenants get more choice
You might even say everybody wins.
