Second Reading and Remaining Stages
My Lords, the Chancellor’s Autumn Statement last December announced an important and comprehensive reform to stamp duty land tax—SDLT—on residential property. With effect from 4 December, the structure, rates and thresholds of stamp duty land tax have changed for residential properties, and stamp duty has moved from a “slab” to a “slice” arrangement. Each new SDLT rate is now payable only on the portion of the property value that falls within each band. That is in contrast to the old system, under which tax was due at one rate for the entire property value.
Stamp duty land tax is an important source of government revenue: it raised £6.5 billion in 2013-14 to pay for the essential services that government provides and supports. However, the old system was increasingly seen as unfair and inequitable, especially for those looking to move on and up the housing ladder.
Under the new structure, no buyer purchasing a property will pay any SDLT at all for the portion of the property up to £125,000. Buyers will be charged 2% for the portion from £125,000 to £250,000, and 5% for the portion from £250,000 to £925,000. Those buying a house worth over £925,000 will be charged 10% for the portion of the price between £925,000 and £1.5 million. From £1.5 million onwards, buyers will pay 12% SDLT for the proportion of the price above that threshold.
Moving from a slab to a slice arrangement is right in terms of fairness and economic efficiency. The new arrangement will cut SDLT for 98% of people who pay the tax; and no one who buys a home worth up to £937,500 will pay more compared to the previous system.
The stamp duty system as it then stood was a flawed system. It had been criticised by policymakers, industry and think tanks. The “slab” system created a significant hike in taxes at particular thresholds. It created the absurd situation where if you paid £250,000 for a house you would end up paying £2,500 in stamp duty, but if you paid £250,001 you would have to pay £7,500—three times as much. In reality, of course, nobody did. In 2013-14, there were over 30 times as many sales between £245,000 and £250,000 as between £250,000 and £255,000. That represented a significant distortion in the housing market, given the average UK house price of around £275,000, and one which is removed by the Bill.
Not only does the Bill eliminate the previous flaws in the stamp duty system, but it does so in a way which gives a helping hand to those at the bottom of the housing ladder. A family buying a Help to Buy property at the average cost of £185,000 will be £650 better off—a significant sum, especially at a time when cash is most likely to be tight. As I said, nobody buying a home worth up to £937,500 will pay more SDLT under the reformed system, and many will be left with substantial sums in their pockets. Overall, 98% of purchases nationwide will pay the same SDLT or less. That is 99% in Scotland, Wales and Northern Ireland, and 91% in London.
These reforms came into force at midnight on 4 December, to avoid creating undue distortions in the housing market. This stand-alone Bill was introduced in the other place on 4 December, and its provisions have had statutory effect under the Provisional Collection of Taxes Act since the end of the Autumn Statement debate on 3 December. The Government ensured that if a person had exchanged contracts before 4 December but completed on or after that date, transitional arrangements were in place to ensure that they would not lose out.
We also paid particular attention to how this change would affect Scotland. From 1 April 2015, land and buildings transaction tax is due to replace SDLT in Scotland. However, up until that point, these reforms apply to all residential property transactions in the UK, including Scotland. That will ensure that home buyers in Scotland do not miss out on a potential tax cut before their own tax comes into operation.
This change was met enthusiastically by industry, with the CBI labelling it,
“a shot in the arm for families and growing firms”.
It sits as part of a wider scheme of government policies that are designed to boost home ownership and homebuilding, relieving the pressures on the housing market and helping to make people’s aspirations a reality. I beg to move.
My Lords, first, I declare my property interests as per the register of interests. The Stamp Duty Land Tax Bill proposals set out in the Autumn Statement are broadly welcome. Stamp duty was an area that was ripe for reform to assist first-time buyers and all those purchasing at below average or, where relevant geographically, average prices. As has been said, the new rules give a useful saving in duty if the house that is being bought is less than £937,500 in cost. Also welcome is the axing of the so-called slab system and its replacement by a progressive income-tax style levy. According to the Financial Times Lucien Cook, residential director of estate agency Savills, said that buyers of average homes outside London would pay “much lower” levels of stamp duty. He said:
“In particular, first time buyers and second steppers will find it easier to raise the deposit needed to obtain mortgage finance, removing one of the major hurdles in the current market”.
Mortgage brokers said that reforms would stimulate sales around the current stamp duty thresholds in particular. As already stated by my noble friend Lord Newby, above the level of £937,500, the total rate of stamp duty will increase. At the higher end of the market, it will tend to tilt the balance towards foreign ownership even more. As one estate agent, David Adams of John Taylor, told me, a buyer from Hong Kong who pays income tax at only 15 per cent is unlikely to be deterred in his London purchase, whereas the UK buyer at, say, the £2 million price level may be put off from making a purchase due to the extra stamp duty.
Does it matter that there is more foreign ownership of our housing stock? If it means that there are fewer transactions by UK buyers, a problem can filter down to lower levels of the market. UK residents may prefer to improve their existing house rather than fork out extra stamp duty on a new one, thus creating a logjam in the market. While the changes will encourage first-time buyers, it remains to be seen how they will affect the housing market as a whole. If house prices continue to rise, which is a distinct possibility due to low interest rates, particularly in London and the south-east, it could put pressure as well on the private rental sector, since potential purchasers will continue to be priced out of the market.
The cost to the Exchequer of the change is estimated to be £4.1 billion over the next few years, but other measures in the Autumn Statement cancel it out. As Paul Johnson, IFS director, has also queried, why has the same slab structure not been applied to non-residential property?
By this Bill, the Chancellor sensibly hoped to put pressure on the Labour Party to abandon its plans for a mansion tax. The legislation increases the rate of duty markedly to 10 per cent for house prices above £925,000 and 12 per cent for the amount above £1.5 million. However, the Opposition seem determined to press on with their mansion tax policy, which has been criticised by many of their own side. The policy could mean people having to sell their properties to pay the tax, which is a particularly vindictive form of taxation, so we could end up with higher stamp duty and a mansion tax.
One further area that I feel the Government should tackle is where UK properties owned by foreign individuals remain underoccupied. There is a strong case in my view for operating a version of the Swiss taxation system whereby these owners can pay a lump sum based on a quintuple of the rent assessable on the property. Can the Minister pass on this idea to HM Treasury? While effectively a mansion tax is charged on property purchases by offshore companies, there should be some similar levy on domestic UK properties bought by non-domiciled individuals who leave their house empty for a huge portion of the year.
The Government should also consider more tapered taxation rules in other areas, such as capital gains tax where, as has often been suggested by my noble friend Lord Lee of Trafford, short-term gains should be taxed at a higher rate and long-term gains at a lower one. That could actually increase the yield on the tax, which has fallen considerably since it was increased to 28 per cent for individuals. Such a move could mean more transactions in the property market, where secondary residences are involved, and a higher tax yield to the Government.
Finally, might it not have been better, from a government revenue viewpoint, to insert more council tax bands? This year the Centre for Economics and Business Research published some research stating that adding three extra brackets for high-end properties would generate an extra £4.7 billion a year in tax revenue, rather than a predicted stamp duty revenue loss of £4.1 billion over six years. If the Government did this, and in future reduced stamp duty rates, there could be more transactions, thus increasing revenue and freeing up the market.
None of the above would solve the problem of housing supply, which is beyond the scope of this debate. Overall I welcome the Bill, and I hope that an increased volume of transactions will reduce the cost to the Exchequer. The reduction in duty is welcome in a key area of the housing market.
My Lords, I thank the Minister for introducing this Bill, which, as he says, turns the “slab” system into a “slice” system. I will not dwell further on that. The old system created anomalies and distortions, particularly around the thresholds. The OBR carefully avoids saying too much about what the behavioural changes will be. There will certainly be significant behavioural changes around those thresholds, but what the overall effect will be is less clear. Nevertheless, the old system was in need of reform. I welcome these measures, and we are happy to support them.
I also welcome the fact that, through these stamp duty reforms, the Government are accepting that high-value properties are undertaxed. Labour would, in office, go further and introduce a mansion tax, which would raise around £1.2 billion—an estimate with which the Chief Secretary to the Treasury agrees. Labour’s mansion tax will apply only to homes worth £2 million or more. The vast majority of houses, even in London, are worth far less than this: the tax will apply to less than 0.5% of the homes in the country. The £2 million threshold will rise in line with the average rise in prices of high-value properties worth more than £2 million, so the number of properties paying the tax will not increase. If prime property prices continue to rise, by the time we are able to introduce the tax the starting point will be higher than £2 million.
Labour’s mansion tax will also protect those who are asset rich but cash poor. People in high-value homes who do not have high incomes—those who do not pay the higher or top rate of tax, and earn less than £42,000 a year—will have the right to defer the mansion tax until their property changes hands. Labour’s mansion tax will be progressive. Those owning properties worth £2 million to £3 million will pay only an extra £250 a month through this new tax—the same as the average top band of council tax. We think that owners of and investors in properties worth tens of millions of pounds should make a much bigger contribution.
In office, we will look at asking overseas owners of second homes in the UK to make a larger contribution than people living in their only home. It cannot be right that the foreign buyer who bought a £140 million flat in Westminster earlier this year will pay just £26 a week in council tax—the same as the average-value property in that council area.
Labour’s mansion tax will use a simple banded system. Valuations will not be needed for most properties: it will be clear which band they fall into. The Government’s new tax on properties bought through companies relies on owners submitting self- valuations to HMRC; so will the mansion tax.
We have a housing crisis in this country, and it can be addressed only if many more homes are built than are being built now. Labour will give our communities the powers they need to get Britain building again, ensuring that there will be at least 200,000 new homes a year by 2020—almost double the current number. We will also tackle land banking, so that developers with planning permission have to use it, and we will give local authorities powers to ensure that local first-time buyers can take advantage of new homes that are built in their area.
This Bill reforms a bad tax. We welcome that, but we urge the Government to go further and introduce a mansion tax, as we propose to do.
My Lords, I am grateful to noble Lords who have taken part in this debate.
The noble Lord, Lord Northbrook, asked me several questions. He started by asking whether this change would have the effect of increasing foreign ownership at the top end of the market. It is far too early to tell how it will affect the market more generally. A number of suggestions have been made but we must see how things turn out before we can draw any firm conclusions about that. The noble Lord asked why we had not adopted the same approach to non-residential property. The Government think that the market for non-residential property is very different from that for residential property. For example, the data show that the current non-residential SDLT structure has less of a distortive effect around the rate thresholds than the old residential SDLT rules, non-residential properties also have a higher value on average and many have large leases and small premiums, which is rare for residential properties. Because of these differences, we do not think it follows that a reform to non-residential SDLT should accompany the reform that we are talking about today.
The noble Lord raised the Swiss system of dealing with under-occupied properties. I will, of course, happily pass that on to my colleagues in the Treasury. He suggested that we should insert more council tax bands at the top end. I thought for a moment that he was advocating Liberal Democrat policy, but then I discovered that he wanted to do that instead of the changes proposed in the Bill rather than in addition to them. We feel that, through the Bill, we are dealing with a system that has widely distorted the market over a long period and have replaced it with something which is more progressive and less distorting.
The noble Lord, Lord Tunnicliffe, pressed on the House the Labour Party’s proposal for a mansion tax and the need to build more houses. The election will include much debate on the mansion tax and I do not think I would serve a very useful purpose by entering into it this evening. On the noble Lord’s second point, while I agree, and the Government definitely agree, that we need to build more houses, I would point out that the Government have taken significant steps to support housing supply, including introducing the new National Planning Policy Framework, investing £7.8 billion to deliver 335,000 new affordable homes between 2011 and 2018, which is the most ambitious affordable housing programme for 20 years and being done in very difficult economic times, and providing £3.6 billion to facilitate access to finance for SME builders. The Autumn Statement includes a raft of further measures which will substantially boost housebuilding.
I am extremely grateful to noble Lords who have spoken in favour of the principles of the Bill and therefore I ask that it be given a Second Reading.
Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.