The Stamp Duty Wars and the Skinny Rabbit

by Ken Gibb

OK, it is not quite Alien versus Predator or Ali versus Frasier but there is a bit of a competition going on just now between rival versions of our property sales transactions taxes. We are in a faintly bizarre situation that started with the decision to devolve Stamp Duty Land Tax (SDLT) as part of the 2012 (Calman-inspired) Scotland Act and create something different with a new structure called the Land Building Transactions Tax (LBTT). This is to be introduced in Scotland for the financial year 2015-16 (in other words, next April). Now, this week the Chancellor of the Exchequer has announced similar looking structural reforms (but with different rates and schedules to LBTT) but introduced it virtually immediately i.e. from midnight after the day of the Autumn Statement. So, as a result, Scotland will have three sets of property transactions taxes in less than 5 months: the old slab system, the new George Osborne SDLT and then, in April, the new Scottish LBTT.


The old slab base was universally criticized because it meant that those liable paid the marginal rate for the total price of the property but it paid it for the entire value of the house. Both the new version of SDLT and the proposed LBTT work differently so that, like with income tax, the purchaser pays a progressive amount rising form 0 to higher amounts with each tax rate threshold.

The new rates mean you pay nothing on properties up to £125,000, 2% from £125-250,000, 5% from £250,000 to £925,000, 10% between £925,000 and £1.5 million and 12% on levels above £1.5million. On the basis of the current distribution of sales values, the Treasury estimates that this will be a saving for 98% for people who pay SDLT and only those who pay property values above £937,500 will pay more.

In Scotland, the LBTT has fewer rates at a similar marginal structure in terms of how payments will rise. In Scotland, the LBTT will be zero rated up to £135,000, 2% for properties priced between £135,000 and £250,000, 10% for properties selling between £250,000 and £1 million  and 12% for higher prices.

What are we to make of this? Clearly, three sets of stamp duty tax in four months in Scotland is unfortunate, to say the least. It is really not good policy making and will clearly have market consequences, speeding up and changing market levels of activity as buyers try to benefit from the changes (more on this below). The Scottish property professions, rightly, should be just a little irritated by all of this taxation restructuring business.

Second, there are those from the tax reform world who would have no such taxes at all. The Mirrlees Review and the IFS are clear that with comprehensive tax reform there should be no sales taxes because the raise transactions costs, reduce mobility and deter economic activity. Of course, property should be taxed but by recurring taxes on value like a tax on estimated excess returns, on housing consumption and/or a land value tax. However, we live in a second best world and governments like the certainty of property transactions taxes and use them widely and extensively.

Third, the Stamp Duty Land Tax reforms announced by Osborne, the skinny rabbit pulled out of the Autumn Statement hat, was also viewed as a way of shooting the Mansion Tax fox by targeting very high value properties (that is, in London). The Guardian ran a nice story this morning about the crazy market response as high value purchasers tried to bring sales forward to avoid the new tax rates for multi-million properties in London, ones agency did a £100 million of sales in a day. Shades of Nigel Lawson postponing the end of double MIRAS in 1988.

SDLT has been a political football for many years and in particular Brown and Darling both varied it extensively for short run reasons to nudge different interventions such as resisting the housing market downturn after 2008 and earlier using zero SDLT in certain deprived areas to support economic regeneration. And now the present incumbent of 11 Downing Street has decided to use the tax to support the housing market further six months before the general election. More short termism or a modest improvement to transactions tax?

It might be argued that the new tax rates might raise more revenue for HM Treasury – but perhaps not. I have already written in earlier blogs about the difficulties of estimating LBTT revenue – it depends not just on the tax rates but on the volume of transactions and the distribution of property transacted. The fact is, revenue from these taxes varies hugely and it is not straightforward to set rates in such a way as to actually maximise revenue. The jury is just on the way out on the revenue the new rates will generate. This all equally applies in Scotland with its lower house price levels and simpler and lower maximum rated LBTT structure.

In the end, let’s give the new SDLT one cheer for getting rid of the slab structure, but more negative noises should follow concerning its timing and short termism. There is, arguably, virtually zero long term consideration of how to make the wider housing system work better in a more stable and sustainable fashion. We may live in a second best world but we should aim to do better. As the Scottish Government establishes its independent review of council tax, one can only hope they think about these wider housing and property market considerations and take a longer term perspective.