A housing tax overhaul including ending stamp duty on certain properties could rebalance the UK housing market and reignite activity across all tenures.
New figures show that nearly half of respondents to the RICS Residential Market Survey suggest using tax incentives to encourage downsizing, while making changes to Stamp Duty and Council Tax would help thousands more young people realise their dream of owning their own home.
Over 20% of respondents suggested tax incentives to encourage downsizing, could see the existing UK housing stock distributed more efficiently, matching properties better to housing needs, and benefiting the entire housing chain, as well as addressing the UK’s wider housing shortage.
RICS has long called on Government to incentivise downsizing, to no avail. One method suggested is to incentivise those with larger homes to move into smaller properties, by making them exempt from stamp duty. This would bring more second hand properties to market, benefiting the entire housing chain, and addressing the UK’s wider housing shortage.
Secondly, removing Stamp Duty altogether and adjusting Council Tax rates to account for lost revenue is also seen as a viable option, by just under 20% of respondents. Anecdotally, respondents suggested, scrapping SDLT would shift the burden away from the transactional phase and onto occupation, freeing up funds in the buying process.
RICS has long called for Government to make changes to the current tax system when buying houses, with the monthly RICS Residential Market Survey strongly supporting our recommendations. The current system of residential property taxation is deterring existing homeowners from moving, especially if they feel the money spent on tax could be put to better use in the current economy.
Abdul Choudhury, RICS Policy Manager commented “It is not surprising that our professionals feel that residential property taxation is out of kilter. If we consider tax in terms of how they disincentivise certain behaviours, SDLT makes purchasing, moving and making more effective use of stock costly at a time when we need all these things. Council taxes, on the other hand are woefully out of date and are highly politicised.
“Any changes to the system of tax should be considered carefully, as they would have disruptive consequences that could negatively impact activity. Providing an SDLT exemption for downsizers could free up larger, underused properties; but will likely provide them with a market advantage over other participants. Similarly, replacing SDLT with council could increase house buying and selling activity; but increase day-to-day living costs at a time when occupiers are already facing higher bills.
“However, given the state of the housing market, it would be prudent for the government to consider the cumulative impact current taxes are having on behaviour and determine what changes can create a more sustainable and vibrant property sector. We would therefore urge the Government to undertake a full-scale review of the SDLT system – starting with what it hopes to achieve from this tax in terms of revenue generation, market fluidity or another objective.
“It is imperative that the Government recognises that markets need time to adjust to alterations to tax regimes as inconsistency is not conducive to the stable market that buyers and investors need. SDLT has seen a number of changes in recent years, with the market struggling to adapt to one change before another is introduced.
“Given that RICS professionals are front and centre of the residential market, we will be developing a critique of the housing buying tax options available to Government in the near future.”
Currently, it is estimated that the average first time buyer requires over £33,000 for a house deposit, with figures significantly higher across the South East and in London.
Further recommendations to help fix the broken housing market from the survey include:
- Extending the Government’s Help-to-Buy scheme past the current 2021 deadline, but only for first-time buyers.
- Government needs to provide more funding to extend the supply of sub-market tenures and implementing a rental framework that links uplift to inflation.
The figures come from a series of additional questions included in the RICS UK Residential Market Survey where chartered surveyors were asked how significant they felt the overall challenge was for young people getting onto the housing ladder, with responses marked on a scale of 1 to 5 (5 being the most significant). Respondents in London, the South East and Yorkshire & Humberside felt the challenge was more difficult than those in the North East and Midlands. Overall, the average across the UK was 3.6.