House prices could rise in England and Wales in the next 12 months because of the decision to abolish stamp duty for most first time buyers. The change does not apply in Scotland.
While the market had lobbied for a temporary ‘holiday’ from stamp duty, the property tax paid by buyers, and it had been widely expected that there would be some sort of change, the total abolition of the tax took some by surprise.
Under the new measure first time buyers paying £300,000 or less for a residential property will pay no Stamp Duty Land Tax (SDLT). First time buyers paying between £300,000 and £500,000 will pay SDLT at 5% on the amount of the purchase price in excess of £300,000, a reduction of £5,000 compared to the amount of SDLT they would have previously paid
While it has been generally welcomed as good for the housing market, there are concerns that with not enough new homes being built a rush from first time buyers could make the already short supply worse.
Now it is being suggested that the result of even fewer homes on the market will be higher prices and HMRC has confirmed this is likely. ‘Paying no SDLT reduces the upfront cost of buying a home for first time buyers. This measure is expected to lead to a small increase in house prices in the first year after implementation,’ HMRC said in a statement.
The clarification from HMRC also suggests that to avoid paying stamp duty if buying as a couple both purchasers have to be first time buyers. This raises the prospect that if a couple are buying and one has owned a home before they may not qualify for first time buyer status.
‘A first time buyer is defined as an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence,’ the HMRC document says.
HMRC also points out that the abolition of stamp duty does not apply in Scotland which sets its own tax called Land and Buildings Transaction Tax (LLBT). It will apply in Wales until 01 April 2018 when Wales takes over property tax setting powers.
Already there are calls for Scotland to follow Hammond’s announcement. ‘Our view is that LLBT should be reviewed urgently because it is not delivering the expected benefit to the public purse in Scotland,’ said Simon Brown, head of residential agency at independent property consultancy Galbraith.
‘It is causing stagnation in the middle and upper tiers of the property market, with a knock-on effect on the market overall. Now is the ideal time for the Scottish Government to give consideration to changing its policy here,’ he added.
Scotland’s Budget is not due until next month. But as houses for first time buyers generally fall below the £145,000 level where LBBT kicks in, there could be no change. From £145,000 LLBT increases in bands from 2% to 10% for properties valued at between £145,000 to £750,000 and 12% above that.