Abolish Stamp Duty of 3% on buy to lets
David Anderson, Sykes Anderson Perry Limited Solicitors London
This article is for general information only. Tax law is a highly specialised area and you should only act or refrain from acting after receiving full professional advice on the facts of your particular case. This article is for general information and does not constitute investment advice. Always consult an IFA.
On Wednesday 23 November 2016, the Chancellor of the Exchequer, Philip Hammond will present his Autumn Statement. It is to be hoped that he will abolish the 3% additional Stamp Duty Land Tax investors face on buy to let properties. This tax which is meant to help first time buyers get on the property ladder has a number of fundamental flaws. These are regardless of the effect the 3% tax has had on the number of sales.
- Most taxes have a headline tax rate and then various exemptions or ways of reducing the tax burden. This tax is very unusual in that it targets a group of people and increases their tax burden significantly. This is not how governments running free market economies usually operate.
- The increase in tax is disproportionate. If you are not an investor and buy a £500,000 property you pay SDLT of £15,000. If you are an investor you pay £30,000 which is 100 % more tax. Differentials on this scale do not exist for other taxes. Generally big differentials are not sustainable.
- It does not penalise “bad” behaviour. Tax on cigarettes targets “bad” behaviour and people accept it. Providing rental accommodation cannot be said to be “bad” behaviour. A tax on landlords who do not maintain their properties at an adequate standard for tenants would be a “good” tax.
- Distorting a free market with substantial tax changes rarely has a happy ending. For example the ending of double MIRAS tax relief in August 1988 led to a severe property crash a few months later which blighted first time buyers for years afterwards. As with the 3% tax there was a rush to buy before the exemption ended with buyers in negative equity for years later. If the market turns down there is more of an incentive for investors to wait before buying as the saving for them on a price reduction is bigger, compounding the problem.
- Unrealistic tax charges undermine tax morality. Taxpayers lose respect for governments which over tax. This could easily happen here with non UK resident investors not declaring second homes abroad. Many foreign homes are owned through foreign companies and HMRC is unlikely to have the resources to thoroughly check stamp duty tax declarations.