Stamp duty payable by the seller, not the buyer

 For every property sale transaction there are two parties: buyer and seller. That means that a roughly equal amount of tax would be taken if stamp duty were to be shifted from the buyer to the seller. I say ‘roughly’ because the effect of transferring the tax would mean that instead of there being every incentive for the seller to inflate the price of the property – they don’t pay the tax currently – there might be slight downward pressure on prices because as the sale price increases so does the tax burden for the person who is benefitting from the sale price. I don’t think that would have a huge impact on house prices but then I’m not a property economist.

This shift in tax burden would have an immediate impact on the housing market, because struggling first time buyers by definition would have no tax to pay. And while there may be some very wealthy first time buyers who would benefit inordinately, they would be in the tiny minority. Most first time buyers purchase houses of modest price. This would also avoid at least one of the problems associated with government support schemes, principally that taxpayers’ money (in some form) is being used simply to inflate the market and create windfall house price increases for those already owning property.

So that’s the plus point from the buyers’ end of the market. How about the sellers’ end? Well, let’s imagine that upon your death your house (if you own one) is sold. As part of your estate, solicitors dealing with your affairs will simply take the tax from the value in the estate. And if your estate is in the negative then the tax comes pretty high on the debtors’ list. The main snag of this idea as far as I can tell is that if someone purchased well beyond their means and died suddenly, leaving an estate massively in debt, then the Welsh Government could struggle to get that tax revenue. Would the tax impact of that eventuality be counteracted by the activity associated with the increased ability of first time buyers to enter the market? Possibly.

Another advantage of this plan is that it would be a way of redistributing the tax burden from those of middle income (or capital) to the families of those of high income (capital) because stamp duty would be paid by the estate of people with enormous, highly valued houses (for example), who currently pay nothing. Is there an issue with selling a house to pay for the care of elderly relatives, and the tax being an additional burden on families with these caring responsibilities? Again, possibly. But as time goes by those families will themselves have benefited from not paying stamp duty on their first purchase.

In terms of timing, the move would be instant so the tax take wouldn’t take the hit. Some people would benefit from the change taking place on a particular date, but as long as the date were announced with a year or so’s notice that shouldn’t be too problematic. It would mean a rush for sellers eager to complete a transaction before the cut-off date with an equivalent resistance from buyers.

I said earlier on that it could be a way to increase the tax take. And this is a further benefit of the idea. Because it’s the vendor, not the purchaser, who would pay stamp duty under this proposal, and the vendor has an asset (house), tax can be levied on any sale price. A 1% tax on someone selling a £100,000 house should cause less problems than for someone trying to buy that house. The obvious exception is if you’ve gone and ended up in negative equity, but it’s difficult to cater for people who think that house prices can only ever increase. Who knows, perhaps this revision of the tax would be a means of making people treat house purchase with a little more sobriety.

There’s one more point about this plan. Someone’s bound to say that house prices will equalise in any case and the purchase price for first time buyers will just increase as more competition for available housing arises. My answer to that is that perhaps that’s a possibility – but at least then the increased tax is paid by the vendor, not the first-time buyer.

And if you don’t own a house, well all this is going to pass you by. As long as the tax take increases – or at least stays the same – you’ll be happy in the knowledge that you’re not subsidising the housebuying circus.

Cross-border issues? Someone sells a house in England, paying no tax, and buys one in Wales, paying no tax. The reverse is true for someone leaving Wales and buying in England. The revenue to the Welsh exchequer remains the same, as does the revenue to the English exchequer. The individuals involved are the ones to gain/lose. It potentially incentivises movement from England to Wales (especially at the high end of the market) and stifles movement in the reverse direction (especially at the lower end). The Committee will want to consider the magnitude of this effect, its significance, and if significant its desirability. 

Why the contribution is important

As above. 

Reduces tax burden to nil on first-time buyers (which therefore makes it a progressive tax), increases housing market activity (particularly at the lower end), revenue neutral (or thereabouts). 

 

by penartharbyd on September 28, 2016 at 09:38PM

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