Could further property tax reforms be on the horizon?

It has been a few months since the dust settled on the final closure of the stamp duty holiday scheme; the much-debated tax break policy has been credited with driving high levels of activity at a time of unprecedented economic fragility caused by the pandemic.

Given the consecutive historic price highs recorded, as the market adjusts to a more sustainable and modest mode of growth, it is tempting to consider how further reform might be used to invigorate or reshape the market in the coming years.

Even following the return of full-rate stamp duty last autumn, prices remain at a high, and the UK property market continues to hum with healthy levels of activity across all sectors.

Looking ahead, with a wider economic recovery to consider, the government is likely to look at property as an area ripe for strategic tax reform to better draw in revenue – this is natural, given property’s status as one of the UK’s highest performing cornerstone markets (and not less so for proving relatively inelastic to numerous larger economic shocks in recent years).

As we now enter a calmer period following a frenzied two years, it is worth considering current trends in property, the direction of travel of buyer preferences, and how further tax reform could be levied upon the market going forward.

Stamp Duty seen as “outdated”

To explore the sentiment of buyers towards property taxes, and how they may influence demand, we commissioned a series of independent research among 1,125 homeowners in England and Northern Ireland (NI).

Of those surveyed, over half (58%) felt that Stamp Duty Land Tax (SDLT) is an “outdated” form of tax, with the research revealing buyers have a strong appetite for reform within the property tax system. Indeed, two thirds of homeowners (67%) believe the government should come up with a fairer way of taxing property purchase and ownership than the one-off tax on purchase.

Undoubtedly, the reasons for this will vary – nearly one quarter (23%) say the SDLT makes it difficult for them to access or move up on the property ladder, while six in ten (62%) feel the imposition of a tax on purchase should protect a property’s value from being subject to inheritance tax.

The research suggests many feel the current system is not adequately balanced. A significant majority (70%) of homeowners believe the current 2% surcharge on overseas buyers should be raised, while two thirds (67%) feel the 3% surcharge on second property purchases is too low.

This indicates the SDLT is perceived as a challenging obstacle for first-time buyers to overcome, and homeowners would favour moves towards facilitating greater mobility on the property ladder.?

Changing buyer sentiment

Just as the stamp duty holiday was targeted at stimulating demand in a quieter pandemic property market, further reform could encourage continuations of positive trends we have seen developing in recent years. One such shift has been towards environmental considerations.

In our research, we found that more than one third (36%) of homeowners think an SDLT surcharge should be levied on properties which are less energy efficient. Among the youngest cohort surveyed (18-34), this rises to 46%. Certainly, the tax is open to being modernised to take into greater consideration ESG factors. This could be explored in many ways – a surcharge on energy-inefficient properties would, for instance, likely incentivise the development and purchase of sustainable property on a greater scale.

If applied appropriately, such a reform could also take into account the instances where homeowners are purchasing older properties but are committed to renovating them to meet sustainability requirements.

While stamp duty may no longer be in the media spotlight, appetite for reform remains strong among homebuyers. Given the simplicity of the SDLT’s banded rates system, there is evidently both room for creativity in how it is applied going forward, and the potential of a longer-term modernisation of stamp duties in line with buyers’ evolving needs– it will be interesting to observe how the debate in this area develops in the coming months.?

Alpa Bhakta is the CEO of?Butterfield Mortgages Limited, a London-based prime property mortgage provider with a particular focus on the needs of UK and international HNWIs.?

Butterfield Mortgages is authorised and regulated by the Financial Conduct Authority (FRN:119274).?

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Butterfield Mortgages Limited is part of the Butterfield Group and a subsidiary of The Bank of N.T. Butterfield & Son Limited.?

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