Welsh Conservatives have pledged to abolish Stamp Duty on all properties in Wales valued up to £250, 000. This should be welcome news to anyone thinking of buying a home in the Principality.
But it looks unlikely that a change will come into effect any time soon. The Welsh Assembly has no powers at present to set its own Stamp Duty rates. In any case the Conservatives have few seats in the Assembly, which is controlled by Labour.
Conservatives in Wales may think cuts in Stamp Duty will be a vote-winner for them but in Westminster the government has already rejected many calls to cut SDLT rates. Speaking of the latest proposals a Treasury spokesperson said “Abolishing SDLT for properties below £250, 000 would create a significant cost to the Exchequer at a time when the Government is focused on reducing the deficit. ”
Stamp Duty Land Tax (or SDLT) is charged on all property purchases over £125, 000 throughout the UK. The rates are currently set nationally by the UK government in Westminster.
Scots will be free to set their own Stamp Duty rates next year
However from 2015 the Scottish Parliament will be able to set its own rates, and indeed to change the way that the tax is charged altogether. Similar powers are now in the process of being devolved to the Welsh Assembly.
But even if it does get devolved powers it is improbable that the Conservatives could push through any changes in the Welsh Assembly on their own. At present they only have 6 seats in the Assembly, against Labour’s 28, and the balance of power in Wales is unlikely to change at the next election .
The Government is still resisting calls for reform in England
Nevertheless it is a pity that calls for a root and branch reform of SDLT are being ignored. As buyers have to pay the SDLT it is an additional burden for cash-strapped homebuyers.
At present Duty is charged on a ‘slab’ structure – homes valued below £125, 000 are currently exempt, and duty is payable at 1% of the price on properties up to £250, 000. Above that figure the duty rises to 3% and then in further stages up to 7%.
With home prices now rising many buyers are finding that they are paying higher rates of Stamp Duty. This in itself is seen as being a disincentive to buyers at a time when the government says it wants to encourage a thriving property market.
Criticism of SDLT comes from all sides of the political divide. Paul Davies AM, Shadow Minister for Finance in the Welsh Assembly, called Stamp Duty “. . . a regressive tax, which charges families, who want to own their own home, on their already taxed income. ”
‘Stamp out Stamp Duty’ campaign has received widespread support
The Taxpayers’ Alliance is running a campaign to ‘Stamp out Stamp Duty’ and there have been several independent reports criticising this tax. Research indicates that it acts as a strong deterrent to homebuyers faced with having to pay the government many thousands of pounds in addition to the purchase price of their home.
But successive governments have turned a deaf ear to calls for SDLT to be abolished and replaced by a more equitable property tax. They have also been slow to adjust tax bands to bring them into line with increasing property prices.
Perhaps this is hardly surprising. Stamp Duty is a ‘nice little earner’ for the Treasury. It is easy to collect and the administration costs are minimal as buyers’ Solicitors do most of the work.
The Scots are being allowed to set up their own system of stamp duty next year and to keep the revenue from property sales in Scotland. They are planning to replace the current slab structure of SDLT with a much fairer tax system. It is now planned to give the Welsh Assembly similar power to retain income from SDLT.
English buyers pay the lion’s share of Stamp Duty
It might seem that the UK government is being generous in allowing the Scots and Welsh to keep revenue from property sales in their respective countries. But SDLT revenue from in these two countries is a small part of the total revenue, the bulk of which is generated by sales in England.
According to the latest available government statistics, 94% of the yield from SDLT on residential properties came from properties in England. Scotland contributed 4%, Wales 1. 6% and Northern Ireland 0. 4%. The split on commercial properties is likewise mostly generated from transactions in England.
So the chances of any major changes for the SDLT system in England look very slim at present. Perhaps the government might adjust the tax bands slightly, but even that looks unlikely in the light of the Treasury’s recent comments.