There is intense speculation that Rishi Sunak, the Chancellor of the Exchequer, is set to announce an extension of the current stamp duty land tax (SDLT) holiday. It would appear that the exemption will be extended to the end of June 2021 amid concerns of weakening demand for UK property.
Budget day 3rd March
We have seen a number of “informed leaks” over the last few days confirming the SDLT holiday extension. Despite the fact the extension will significantly reduce government tax income, it seems as though the Chancellor is more concerned about supporting the property market. If confirmed, this will be welcome news for many homebuyers in the UK.
Demand for property showing signs of weakness
When the Chancellor announced the SDLT holiday in June 2020, this had an immediate impact on demand for UK property. The detail of the SDLT holiday is slightly different across the UK:-
It is safe to say that a potential £15,000 SDLT saving in England and Wales was a gift that many potential homeowners found difficult to resist. A report by property website RightMove has suggested that around 100,000 people planning to acquire a home are/were on the verge of missing out on the SDLT holiday. So, it is safe to say that they will be delighted if the Chancellor does announce an extension.
Official data confirms that December 2020 saw house sales increase to levels not seen since before the 2007 financial crisis. November also saw a significant reduction in the average number of days taken to sell a property, falling from 67 to just 49 compared to the previous year. When you bear in mind we are in the midst of a pandemic, the economy is struggling and unemployment is set to rise, this is a significant achievement. However, what are the long-term options for Rishi Sunak?
What next for the SDLT threshold?
There is no doubt that periods of exemption from SDLT do have a significant impact on market activity. The Centre for Policy Studies has been very vocal of late regarding its view of property stamp duty. The organisation believes that current SDLT threshold levels should be maintained in the long term, with a view to abolishing SDLT on property transactions in due course. Is this feasible?
SDLT tax receipts have increased from £3.68 billion in the tax year 2000/01 to a staggering peak of £12.9 billion in the tax year 2017/18. In 2019/20 receipts were down slightly at £11.6 billion, but bearing in mind the difficult economic environment this is understandable. The figures for the tax year 2020/21 will reflect the SDLT holiday and will certainly make for interesting reading. Can the UK government really afford to write-off billions of pounds in SDLT receipts?
Looking to the future
It is highly unlikely that the UK government will instate the current SDLT threshold on a permanent basis. However, it seems highly likely we will see an extension until the end of June after which the Chancellor will no doubt review the outlook for the UK. Even though UK base rates are still at historic lows, leading to minimal interest on government borrowings, national debt is rising strongly.
The current budget deficit is expected to be around £400 billion and even in 2024/25 the IFS is forecasting a budget deficit of £130 billion. So, while the Chancellor looks set to extend the current SDLT holiday, a long-term exemption seems to be way off the mark.