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Stamp Duty Reform

Volume 635: debated on Tuesday 23 January 2018

I beg to move,

That this House has considered reform of stamp duty.

I am delighted to serve under your chairmanship, Mr Streeter, and to have secured the opportunity for the House to debate and discuss stamp duty and its possible reform. I will be speaking in this debate as a politician, but also partly as a practitioner—I am a solicitor who is still in practice. I do not think I have to declare an interest, but I nevertheless think it important that it is on the record.

As everyone knows, property is a huge issue in this country. We like to think of ourselves as a property-owning democracy, and it has certainly been the long-standing ambition of the Conservative party that we see our country as a property-owning democracy, but we should not forget the significant private rented sector, which represents around 20% of the market. It is important to acknowledge the part that it and social housing play in the mix. In many respects, the key issue in housing policy is to get the mix between property ownership, the private rented sector and social housing right.

The other big issue in housing is supply, and in many respects that could be a debate in itself. That issue is clearly of concern to the Government. In my view, we should be looking for a national housing framework with a more flexible local policy. I can give a very simple example: the Carlisle housing market is different from the Lake District housing market, which is different from the Manchester and London housing markets. I acknowledge that is very much a separate debate.

Another issue is property taxes. That is extremely important, especially for public policy. Property taxes are very much part of our tax system. Council tax raises £32 billion a year. Business rates raise £30 billion. Capital gains tax raises £9 billion, and a lot of that is on property. Inheritance tax, much of which goes on property, raises £5 billion. We also have VAT on improvements, income tax on rental income and stamp duty land tax, which raises £13 billion. A huge amount of money is raised from property taxes, and in many respects I understand that—most Governments quite like property taxes, because it is difficult to hide a property.

What is the purpose of ownership? Why is it a good thing? In many respects, it creates the ambition and aspiration of many people to own their own home. They feel they have an investment. It is also a way for many people to save. It gives them a stake in society—they feel they own something and can take responsibility for it. In a survey, the Yorkshire Building Society found that 71% of young adults say that owning their own house makes them feel grown up. It is about ownership and feeling responsible.

Home ownership is a positive thing for the individual and society in general. We must recognise, however, that not everyone will own their own home, so the mix of properties between social housing, the private rented sector and so on is extremely important. We also need to remember that older property owners like to think of property as something they can pass on to their children. They have worked hard throughout their lives. It is an asset that they have enjoyed, but they want the benefit to pass to the next generation. Ownership is beneficial at so many different levels.

What is the purpose of this debate? In many respects, it is about just one element of the property debate. First, I want to look at the reforms to our present system of stamp duty. As an aside, I have a proposal to close a potential tax evasion issue and raise additional tax. I will be interested in the Minister’s response on both those things.

Today, as in the past, the buyer of a property has responsibility for paying stamp duty. They have to pay that tax. Stamp duty is effectively a buyer’s tax. My proposal is simple: change the tax to a sales transaction tax, so that the responsibility for paying stamp duty transfers from the buyer to the seller. I appreciate that that proposal also touches on tax rates, but I want to leave that aside. Each Chancellor has to decide tax rates on an annual basis. My purpose concerns the fundamental principle of who pays the tax.

I congratulate the hon. Gentleman on introducing the debate; he has a lot of experience in these matters. Most people understand that the problems with the housing market are on the supply side, not the demand side. We need to build and deliver more homes. Would it not be a disincentive for people to put their houses on the market if we effectively charge them to sell those houses?

I am grateful for my hon. Friend’s intervention, and accept that we probably have a slightly different view on this subject. I fully accept that the supply of housing is a fundamental problem in our housing market. As I said earlier, that could be seen as a separate debate. For the purpose of today’s debate, I believe that shifting the responsibility for the tax from the buyer to the seller would be beneficial, and hopefully I will explain why.

From the Treasury’s perspective, other than that it would be a change of regime, it is tax-neutral; effectively it would make no difference to the amount of tax that the Treasury raises. I therefore think that the Treasury must look at the issue from a different perspective: is this beneficial to the housing market and to the people who are buying or selling the property? I believe that it will help first-time buyers and give support to those moving up the property ladder. Potentially, it will improve the housing market overall. I emphasise that this is not just the proposal of a random MP; it has a lot of support from the industry, and in particular the Yorkshire Building Society, with which I have had many discussions on this issue.

First, let us take first-time buyers. The changes in the Budget were undoubtedly extremely welcome. The Budget helped a large number of first-time buyers, taking many of them out of the tax regime. That is of course welcome, but there was a cost to it, which I think is reckoned to be in the region of £600 million. There are also some practical issues, such as how we identify who is a first-time buyer and make sure that the correct person is claiming the relief.

The Office for Budget Responsibility says that the changes that came through will cost £3.2 billion, with an estimate that around £150,000 will be spent on every additional first-time buyer under the programme. Those are the OBR’s figures, and that change by the Tory Government will be particularly useless without the supply side. Does the hon. Gentleman’s proposal for the tax to be on the seller’s side have any benefit, beyond the loss of income that the Government are now facing, with no real benefit to first-time buyers?

I am saying that moving the liability from buyer to seller should be neutral to the Treasury. It is up to the Treasury what level of rates it applies, and that changes over time. I did not want to go down that route; I was looking more at the principle of who pays the tax.

If we do move it, it will mean that all first-time buyers will not have to pay any tax at all. It will be very simple to understand who is a first-time buyer. At present, first-time buyers have to find a deposit, the costs and the stamp duty, even though the mortgage only covers the purchase price. The change would therefore help first-time buyers, because they would not have to look for money to pay the stamp duty land tax. If there were a small increase in the price, that would be covered by the mortgage. Interestingly enough, according to a Yorkshire Building Society survey, 44% of first-time buyers say that saving up for the required deposit and stamp duty is very challenging.

I congratulate my hon. Friend on introducing today’s debate. He is making a very considered speech and suggesting a practical solution to a very real problem. In that context, does he agree that with so many people in the private rented sector—20% of the housing market— saving for a deposit is a major issue for many working families, who are currently paying rent, or indeed a mortgage, and want to upsize their property? That is why this scheme has some merit.

My hon. Friend is absolutely right: it is saving up for the deposit that is so challenging for many young people nowadays. Added to that are the solicitors’ costs and the stamp duty costs, which can sometimes make it too difficult for first-time buyers to raise the adequate amount. Incorporating that into the mortgage would be much better, from the purchaser’s perspective. One of the important points that the Yorkshire Building Society makes is that the mortgage would cover the costs if there were a small increase in the price of the property.

I congratulate the hon. Gentleman on securing the debate. I just seek some clarity about what level of cost of home the stamp duty relief, transferring to the seller from the buyer, would operate on, in the light of the Government’s stamp duty relief for first-time buyers. At what price range will that start to support the first-time buyers he is talking about at the moment?

The hon. Lady is absolutely right: the changes that the Government introduced undoubtedly helped many first-time buyers. I fully acknowledge that, and they have gone a long way to taking most first-time buyers out of potential stamp duty. There are some practical issues about identifying who is a first-time buyer. What I am suggesting simplifies the process. It takes every first-time buyer out of the tax regime, and I will come on to some of the other benefits that I foresee.

If somebody wants to move up the chain by selling their smaller house and moving on to a bigger house, because they have a growing family or for other reasons, they would benefit quite significantly from the change. They would still have to pay stamp duty, but it would be on only the lower-valued property. The higher-valued property would not be paid for by them. There would be a clear saving for somebody who was moving up the housing ladder. That would help growing families who wanted to move to a larger property.

We now come to the specific question of who pays. As I have suggested, it should be the seller. People often say, “There will be an immediate increase in prices.” I am not convinced about that. I think that the market will adjust naturally. Indeed, when stamp duty was increased by 3% for the purchase of second homes, I do not think that we saw a rigid decline of 3% in house prices. I suspect that the market will adjust and take care of the potential—I believe small—increase.

Overall, I think it will help the market. We have to realise that those who will pay—that is, sellers—are often in a better position to pay the tax. Many of the people who will be selling will have benefited from many years of increasing house prices, so will have sizeable equity in their property and be more capable of dealing with an increase in the price.

This is a genuine question: is there a danger that the hon. Gentleman’s proposal could disincentivise people who wish to downsize? One of our big problems is people who are currently under-occupying houses, while others are unable to get houses with enough bedrooms. Is there a danger of disincentivising people, or has he thought about a way out?

I take the hon. Gentleman’s point. My view is that if somebody wants to downsize they will probably go ahead, but more importantly the people who are upsizing will get the advantage, and will therefore be interested in the market. I will come to an issue about the housing market, particularly in London at the top end, where I think that the tax regime is causing problems as we speak.

I believe that those who own their property are in a better position to pay the tax when they sell. We also have to look at people who have second homes. They are probably in a much better position to pay the tax because they have an asset that, again, will probably have increased in value. Touching on the hon. Gentleman’s point about individuals and families who are downsizing, quite often properties are sold as part of an estate, when somebody in the family has died. The property probably does not have a mortgage on it, so it will be a windfall for the family. They are therefore in a much stronger position to deal with the payment of that tax.

There are one or two practical issues as well. At present, it is the buyer’s solicitors’ responsibility to pay the tax. I believe that that should continue. Obviously, within the legal profession there would be a mechanism whereby, when the property was sold, they would ensure that they had sufficient money to cover that tax when the property was registered. I also accept that there would have to be a transitional period, because people who have paid tax on a property that they have bought in the last few years would find it a bit hard to subsequently have to pay the stamp duty when they sold the property. I believe that would be manageable. There would be no great change to procedure, it would be effective and I do not think it would affect the market significantly.

What it would do is to improve the market of first-time buyers for those moving up the chain. If we look at the very top end of the market, there seems to be a problem now in London, where very expensive properties are struggling to be sold. Quite often, that is because buyers are unwilling to pay the very high stamp duty required. Changing the rules means there is a possibility of freeing up the top end of the market to some extent, because the seller who wants to get rid of the property would be able to pay the tax, which might encourage the buyer into the market to pay the very high prices.

Another small additional benefit that I would like to raise with the Minister is about the stamp duty land tax form. This might be slightly legalistic and anorakish, but it might nevertheless have a benefit for Government.

At present, when someone submits an SDLT form, the national insurance number of the buyer goes on the form. I suggest that we change that slightly, so that the seller’s NI number also goes on the form. Why? It would give Her Majesty’s Revenue and Customs an opportunity to check two things: capital gains tax and payment of income tax. That is particularly relevant to people who have second, third or fourth properties and is not related to the principal private residence.

I believe that there may be some uncollected tax, because it is possible for people to avoid paying income tax on a rental property, or capital gains tax. Ensuring that the seller’s national insurance number is also on the form would be a great way for HMRC to cross-check to make sure that, over the period of ownership, the seller has paid income tax, as well as to confirm whether capital gains tax is due when the property is sold.

The proposal has strong support from the industry. It is an idea that I have supported throughout my time as a Member of Parliament. Many members of my profession support the idea. Building societies, particularly the Yorkshire Building Society, have been very vocal in support. My hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) may be an exception, but many estate agents agree. It is a policy whose time is coming. In the Budget, the Chancellor took first-time buyers out of the tax altogether. It is one more step to reform the tax in the way I suggest.

I welcome the changes that the Chancellor brought in in the Budget. The increase in thresholds was welcome. Previous changes, such as sliding scales, were very sensible. There is an opportunity for the Chancellor to innovate further and change this aspect of our tax system. I do not expect the Minister to announce changes to policy today, but I hope he will consider my idea. Will he look at the issue? Will he meet representatives of the industry to discuss it? Will he carry out a consultation on it? Out of interest, does he agree with my idea?

On the national insurance suggestion, will the Minister look at that and give feedback? I am sure Treasury officials would be able to analyse whether the suggestion would be beneficial. Will he look at whether there has been a loss, or a potential loss, in income tax or capital gains tax from people who have owned second properties?

Property really does matter in this country. I completely understand the importance of getting the supply right. Types of ownership and the mix are so important, but so are changes to our tax regime. As I said at the outset, property taxes raise a huge amount of tax in this country—it is probably one of the biggest areas of tax for our Exchequer. This is an opportunity to make a small but significant change to that regime. I look forward to hearing the Minister’s response.

It is a pleasure to speak under your chairmanship, Mr Streeter—I almost said Mr Speaker there; perhaps that is a Freudian slip. I am grateful to my hon. Friend the Member for Carlisle (John Stevenson) for organising this debate and for bringing to it his customary thoughtful style and experience as a solicitor. I was also a solicitor before coming to this House, although not a property one. I am aware of some of the experiences that he has had and in my prior life, before being appointed as a Minister, I was very interested in the property market and some of the questions that he has raised today. I will try to respond to as many of those as possible, but let me first raise some of the background to stamp duty and the Government’s recent reforms, because it is fair to say that there has been a great deal of activity in the area over the last few years.

Stamp duty as we know it was introduced in 2003. It replaced the former stamp duty regime, which my hon. Friend will remember from his time as a solicitor and required the physical stamping of documents. It raises over £11 billion a year, which makes an important contribution to our public services, as he said—we should remember that in the context of this debate—including £8.6 billion a year from residential property transactions. Although we continue to seek ways to reform stamp duty, we have to bear in mind its importance to the Treasury and our public services.

Over the last few years, stamp duty has played a significant part in a number of different budgets, and the Government’s objectives when considering it and its impact on residential property purchases have been above all to support first-time buyers, and to sustain the tax base. We are trying to keep the tax as simple as possible and to reduce it where possible. We are aware of the distortions that the tax can inevitably lead to, which deters people from moving home, from downsizing and from upscaling, and the effect that has on quality of life. Buying a home and changing where a person lives is obviously one of the most important decisions that they make, and we want to make sure that, where possible, the tax system does not interfere in that. We see it as an important lever in the housing market, but not the only lever. The housing market requires supply-side reforms as well as tax changes, and any reform of stamp duty can only be one potentially small element in our housing policies.

With those priorities in mind, the Government have taken a succession of significant actions to reform how stamp duty works. In 2010, the stepped structure of stamp duty through the most widely applicable price bracket created distortions in the housing market, which everyone was familiar with, particularly people such as my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) who have worked as estate agents. We wanted to iron out some of those problems for both sellers and buyers. The stepped increases in rates meant, for example, that those moving up the housing ladder were met with large increases in tax when properties fell into higher brackets.

In 2014, we took action to reform stamp duty on residential properties at the autumn statement, which many hon. Members will remember. We changed the stepped increases to a variable rate that increased with the price of the property purchased. That was an important and successful reform and led to about 98% of people liable for stamp duty finding their bills reduced. There were new, higher rates for properties of the highest value, which increased the tax paid by so-called prime and super-prime properties particularly focused on areas of central London, but the vast majority of homebuyers in our constituencies across the country were better off as a result of the changes.

Since becoming a Minister, I have asked to see the figures on transactions in the higher price brackets. There has been quite a significant amount of press coverage of that. At present, the Treasury does not believe that there has been a material change in the number of transactions at the highest price brackets, but we will continue to keep that under review, bearing in mind the public interest.

In April 2016, we introduced higher rates of stamp duty on additional properties, which was designed to tip the scales in favour of first-time buyers and away from those who want to purchase second homes or invest in buy-to-let. Of course, it is perfectly acceptable for people to want to do that. We understand that and do not want to make it impossible for people to enjoy a second home or to invest in buy-to-let property for their pension and their future or for their children and grandchildren, but we did believe that it was important to make changes to help others to get on the property ladder.

Since those changes were introduced, more than 400,000 people have bought their first home and first-time buyers make up an increasing proportion of those in the mortgaged property market. However, it remains very challenging for young people to get on the property ladder—we all acknowledge that—and therefore in 2017 we made the largest change so far, which was to remove stamp duty for first-time buyers.

At the autumn Budget, we permanently abolished stamp duty for first-time buyers who were purchasing a property for £300,000 or less. First-time buyers purchasing a house for between £300,000 and £500,000 will save £5,000 and, to ensure that the relief is targeted at those who need it the most, purchases above £500,000 will not benefit. We appreciate that in parts of the country properties are of such a high value that the benefit is more limited, but even in London the average amount of stamp duty paid by first-time buyers has been halved, so the change is still significant and an improvement for anyone trying to get into the property market for the first time.

To turn specifically to the points made by my hon. Friend the Member for Carlisle, his suggestion about transferring stamp duty from the buyer to the seller was thoughtful and one that, he will not be surprised to hear, the Treasury has given thought to. We have done considerable research into it. It would be a significant step and therefore one that we should take only if the benefits are clear. The legal liability for stamp duty rests with the purchaser, but evidence suggests that the cost of stamp duty is reflected in the value of the property. That is of particular concern with respect to my hon. Friend’s suggestion, because it means that switching the formal liability to the seller would be likely to have a limited effect on the overall cost of purchasing a house. My hon. Friend’s argument would have been stronger before we changed stamp duty for first-time buyers. Now the vast majority—80%—of first-time buyers have no stamp duty and 95% benefit from our changes. Before those changes, of course his proposal would have made a significant difference.

Another point, made by the hon. Member for Brighton, Kemptown (Lloyd Russell-Moyle), with respect to those downsizing, would be of concern to us, because there might be a reason for people not to downsize when we want those who are a bit older with larger homes to consider moving into smaller homes—if they wish to, of course—freeing up properties for the next generation. We will give the suggestion thought, and I am happy to meet anyone about it, but it is not something that we are considering at present.

The other suggestion made by my hon. Friend the Member for Carlisle, on the stamp duty land tax form, was interesting. I would like to take it up with him and hear more. I am happy to meet him with my officials to take it forward. I think Her Majesty’s Revenue and Customs would be interested in considering the idea.

I have only a minute or so remaining, so I will conclude. The Treasury is extremely committed to improving the housing market. Members on all sides of the House appreciate the fact that our housing market is broken and needs fundamental reform. We see tax as an element of that, and I hope that over the past several years right hon. and hon. Members have seen a number of significant interventions to make that better. One argument is that we now need to move into a period of stability with respect to stamp duty, so that those selling and buying homes and those operating in the market have the confidence to make choices in the future. We will, however, consider future options, and we will do everything we can with the Ministry of Housing, Communities and Local Government to ensure that we continue to increase the supply of homes throughout the country, particularly focused on first-time buyers.

Question put and agreed to.