RICS response to Tories’ plan to hike stamp duty on non-UK residents
The Stamp Duty (SDLT) framework has seen changes on an annual basis since 2014; and this proposal adds yet another to add to the inconsistency.
The primary objective of this new surcharge seems to be to reduce house price inflation, and to assist first time buyers making their first step of the housing journey. However, the Conservative Party need to recognise that it is a lack of supply, driven by failure to build enough homes that is limiting FTB potential, rather than increases in second home ownership.
Whilst policy comparators from elsewhere do show positive results for non-resident levies, RICS research in the summer told us that RICS professionals felt that the 1% levy would not increase the supply of housing to UK residents. In an example from elsewhere, the “Foreign-Buyers Tax” which introduced a 15% additional tax liability on houses purchased by non-Canadian citizens or non-permanent residents in Vancouver, Canada, in August 2016 actually decreased the number of high-end properties coming onto the market, with a side effect of a fall in house prices.
As the current weighting of the SDLT bands and thresholds in the UK mean that it is overly dependent on the revenue raised from upper market sales, this means that while lower prices may be seen as a positive in some areas, sales could also drop and therefore, the overall tax take from SDLT (including this surcharge) will fall. Leaving less to input into schemes for first time buyers.
An additional unintended consequence of this surcharge, therefore, is higher end housing market providers being be deterred from development, which could have negative consequences across the housing market.
It is imperative that before taking this proposal forward, the Conservatives recognise three important issues:
- Firstly, a key attraction for investment in property is stable market conditions and a key contributor to that is consistency. Regularly changing the SDLT framework is not conducive to market confidence. The piecemeal approach recently has left little opportunity for the market to adapt to all the changes to SDLT announced in consecutive Budget Statements.
- Secondly, the SDLT regime remains out of kilter with the UK housing market. It presents an additional financial liability, when affordability for many prospective buyers is stretched or out of reach altogether. Whilst further amendments to the SDLT regime may provide a short-lived uplift in activity, and support Government priorities, regularly changing regimes disrupts confidence ultimately impacting negatively upon sales activity.
- Finally, as recommended in the RICS Manifesto, the future Government should consider a full-scale review of the stamp duty land tax (SDLT) system. It should start with what the Government hopes to achieve from SDLT – whether it is revenue generation, market fluidity or another objective and end with a conclusive view on whether the tax is fit for purpose. We strongly advise that the financial impact of any proposal should be modelled to ensure that administrative costs do not exceed the tax take.
Kindly shared by Royal Institution of Chartered Surveyors (RICS)