Government research casts doubt on
effectiveness of stamp duty cut
THE Chartered Institute of Taxation (CIOT)
has highlighted HM Revenue and Customs (HMRC) research that may cast doubt on
the effectiveness of plans to abolish stamp duty for 1st time house buyers.
The Chancellor, Philip Hammond, announced in the Budget that the Government
would abolish Stamp Duty Land Tax (SDLT) for 1st time house buyers on
properties worth less than ₤300,000, effective 22 November 2017. His speech emphasised
the difference between a temporary holiday and a permanent cut.
But the CIOT highlighted a November 2011 report from HMRC which evaluated the
introduction of a temporary SDLT relief on transactions between March 2010 and
2012 initiated by the last Labour Government. The evaluation concluded that the
policy had little effect on improving the affordability of homes, with
1st time house buyer transactions:- 'around 0% to 2% higher than they
would have been in the absence of the relief.' It also suggested that:-
'that the majority of the 1% Tax relief was capitalised in higher prices.' The Institute recognises that the effect of a permanent cut in today's
conditions could be different from that of a temporary cut several years ago.
But it called on the Government to commit to an evaluation of the policy to
ensure that it meets its policy intent of widening access to home ownership for
young people in a cost effective way. Commenting, Brian Slater, chair of the CIOT's Property
Taxes Sub Committee,
said:- "The Government has set its stall on delivering a budget that
supports investment in the UK's housing market, but the fact that its own
research concluded that a similar measure had little or no impact in stimulating
1st time buyer transactions must cast doubt on the potential effectiveness of
a stamp duty cut for 1st time house buyers.
Most Tax measures are implemented on the basis of how much they will raise, how
much they will cost and whether they will achieve the Government's stated policy
With HMRC itself concluding that a similar measure in the past failed to deliver
on the objective of improving the affordability of home ownership, the
Government should commit to an evaluation of the policy at the earliest possible
opportunity in order to determine its effectiveness.
It may well be that a permanent relief will have a different behavioural impact
than a temporary reprieve, but nevertheless the tension between the evaluation
of the last measure and this proposal does underline the need for reliefs of
this nature to be properly considered, consulted on and evaluated.
The Government's policy paper states that the measure will support home
ownership and 1st time buyers by reducing upfront costs. Clearly, this cost
reduction will only be realised to the extent that house prices in the market do
not rise to reflect the existence of the relief."
In its Better Budgets... making Tax policy better report, the CIOT, Institute for
Government and Institute for Fiscal Studies set out 10 steps for improving the
Tax policy making process, including improved evaluation of Tax measures.
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