Should SDLT be scrapped? In the following analysis, Cordelia Smith, Associate at Hunters Law LLP, explores the complex impact of Stamp Duty Land Tax (SDLT) on the UK property market. From first-time buyers struggling in high-cost areas to the unintended consequences of tax holidays, Smith highlights how the current SDLT regime influences affordability, buying decisions, and market dynamics. She examines whether reform or abolition is feasible, and what a fairer, more flexible system might look like for buyers, brokers, and advisers alike.
No one involved in the house buying process can be unaware of the impact of SDLT on the affordability of buying a home. Mortgage brokers, estate agents and conveyancers have surely all encountered clients whose plans have been altered or put on hold because of the likely amount of their SDLT liability. It is a tax that often has a disproportionate impact on people’s decisions to move house. It affects when and where houses are bought – and indeed if they are bought at all – and who can buy them. Politicians from across the political spectrum have made bold statements recently about abolishing SDLT and reforming property taxes – but what are the current issues, and will they really be as simple to resolve as the headlines suggest?
North-South divide
As is so often the case with the UK housing market, the problem is not evenly distributed across the country. The inflated cost of housing in and around London and the South East is all too well recorded. As a result, the practical problems that SDLT can cause are similarly unevenly distributed.
The current SDLT regime imposes differing rates of tax on different ‘chunks’ of the purchase price. A property costing £300,000 would attract 0% on the first £125,000, 2% on the next £125,000, and 5% on the £50,000 after that – a degree of complexity that many buyers fail (or don’t want) to understand. One consequence of this, however, is that properties in already overpriced areas will attract what seems to many to be disproportionately high levels of SDLT. Coupled with higher mortgage rates than many younger borrowers will remember, for financially squeezed buyers, this perfect storm can be enough to bring their plans of moving house to an abrupt halt.
First-time buyers
Anyone buying their first property will pay no SDLT at all if the purchase price is £300,000 or less. A reduced rate is payable on any amount over £300,000 and up to £500,000. Anything above £500,000 isn’t eligible for any relief at all. These price ceilings are perfectly adequate for many parts of the country – a quick look at Rightmove will reveal plenty of ‘first foot on the ladder’ flats and even houses in many parts of the country.
The difficulty arises when first-time buyers need and want to buy in a more expensive area. Properties under the £300,000 in London are rare as hen’s teeth; and even a relatively modest two-up-two-down terrace can easily broach the £500,000-mark. The shortage of cheaper properties affects all parts of the property market, from clogging up rented accommodation to preventing people from taking the next step up on the ladder. The current broad-brush approach to SDLT reliefs is clearly not fit for purpose – a one-size-fits-all approach that ignores the widely differing nature of the property market across the country.
Unintended consequences
But as anyone who witnessed the bubble caused by the post-lockdown SDLT ‘holiday’ will know, the removal of SDLT risks producing unintended consequences. More comfortably-off buyers realised that they could increase their offers by the amount that they would otherwise have budgeted for SDLT – and the housing market is still struggling to adjust to today’s buyers’ more realistic price expectations.
Any government that seeks to abolish SDLT or otherwise reform property taxes will have to tread a careful path. There is a real need for first-time buyers in more expensive parts of the country not to be penalised for the state of the market. At the same time, it’s vital that any SDLT relief doesn’t inadvertently fuel another bubble and end up exacerbating rather than solving the problem of affordability for those trying to buy their first home.
What next?
Tax cuts make attention-grabbing headlines – and SDLT is surely a tax that feels more noticeable to many people than, say, the amount deducted on their monthly payslip. But the reform of housing tax will require serious consideration of the very wide-ranging impact that it will have – and will also arguably need some degree of consensus across the political divide. There can be little doubt that the current SDLT regime is both too complex and too inflexible to be effective. It remains to be seen whether there is the political will to come up with a fairer system of property tax, which gives help where it is most needed but without artificially inflating the market.
Cordelia Smith is Associate at Hunters Law LLP
