We now have a new Leader of the Conservative Party and, rather more importantly, a new Prime Minister.
That individual is Boris Johnson and, given some of the measures he mentioned during hustings, we could be seeing some fundamental changes to stamp duty brought in.
Very early in his leadership campaign, Johnson talked about stopping stamp duty completely for purchases below £500,000 and cutting the top-rate from its current 12% down to 7%.
The idea of course is to help stimulate housing purchase activity, with the high cost of stamp duty often cited as a real hindrance to potential buyers.
Johnson’s plans are interesting for a number of reasons – firstly, no stamp duty below £500,000 is not just a measure for first-time buyers but the entire market, so this could well stimulate second-steppers and those who have wanted to move recently, but felt that moving costs were prohibitive.
And the cut to the highest rate might well provide a boost, for example, to the London market which many believe has been impacted considerably by the higher stamp duty costs. That remains to be seen.
Rather more recently, however, there have been claims that Johnson is looking at a more fundamental reappraisal of stamp duty, with some suggestions he is open to shifting the burden for the tax from buyers to sellers.
This would obviously be a fundamental change, and until such a move was put into practice it would be difficult to ascertain what the true impact might be. However, it’s worth looking at the potential pros and cons of such a move.
On the one hand, shifting payment to the seller might well remove the complexity which currently exists with stamp duty – it’s complicated and, of course, we have different rates for differently-priced residential properties, but we have additional rates for those buying ‘additional properties’.
It should, however, be pointed out that the measures around shifting the burden to sellers is only being considered for residential, and therefore buy-to-let landlords, for example, would not see any difference.
That said, what about the issue of transitioning from one regime to another? What would the cut-off point be? How might that impact on the supply of property to the sector not just at that point but in the long-term?
It could well lead to a further shortage of properties coming onto the market; also those planning their finances around the basis of the old approach might feel they have to wait it out until there is a period of adjustment to the new policy.
What about how the government is able to use stamp duty in the future? Over the last 20 years, stamp duty has been tweaked and changed in order to help stimulate certain parts of the housing market, perhaps most notably, for first-time buyers.
Stamp duty cuts and holidays have been used and moving the burden to sellers might well scupper the ability of future governments to use stamp duty in such a way.
That might well be a factor which stops such a proposal making it to the statute book, plus of course any such measure will require legislation and will therefore have to take its place in the legislative queue. This is likely to be a slow-burn issue if Johnson wants to make the change.
What else might be the result of such a change? If this policy were to result in a shortage of properties, then we might sense that house prices would increase, not just because of that shortage but because sellers would need to find the extra money to pay for their stamp duty. Might we see prices raised by the stamp duty amount required?
We should also be mindful of it potentially creating a negative equity situation for sellers – would those who have bought most recently, say under the Help to Buy scheme, be hit the hardest given there has been a tendency to over-value such properties?
And what of the potential winners and losers here? First-time buyers, purchasing at any price point, clearly wouldn’t have a stamp duty cost to think about, but might this just work through in higher prices needing to be paid?
If sellers are buying and selling at the same time, then assuming they are not down-sizing, the likelihood is they will pay less duty overall.
For those selling but not buying, such as older homeowners moving into retirement homes, then they would effectively be penalised by the change.
Then again, overall it might be a fairer option in the long-run given that the seller holds the increase in the asset value and, where it’s their main residence, will not fall foul of Capital Gains Tax.
As can be seen, such a move will need careful thought before being introduced, and there are any number of unintentional consequences which could result in this shift.
What we can be certain of is that it is unlikely to please everyone, and in the short-term at least it may cause significant disruption.
For that very reason, and because of political expediency and some other rather larger issues to resolve, this government might feel it is better to tweak first and radically overhaul later.
If of course, political events allow them to even get that far.
*Beth Rudolf is Director of Delivery at the Conveyancing Association (CA)