THE ARITHMETIC of Converting SDLT to a Land Value Tax (LVT).
Average SDLT Revenue per Transaction 2005-2015
(These are my own
calculations based on figures in previous references)
The effect of Converting the 1-off SDLT into an annual LVT
SDLT is a drag on the
housing market, and can discourage some people from putting their home up for
sale. Two of the worst features of SDLT could be fixed straight away.
—Instead of a lump sum at
the time of the sale, there will be a much smaller on-going payment based on
the land-value of the plot.
—Regular movers, the heroes
of the flexible economy, will be freer to move because they won’t be hit by a
big SDLT every time they move.
Will the politicians, especially the Chancellor approve of this change?
That
would depend on the rate of LVT to be charged.
To
keep the Chancellor of the Exchequer happy we should try to be ‘revenue
neutral’ — generating as much tax revenue as before. Let’s look at the sums.
I’ve
done the calculations and this is what I recon should do the trick
and
the slogan might be
“House-buyers: Don’t pay a big lump of SDLT now! Spread your payments
out as a yearly charge of just one-half of one percent of the value of the plot
of land your house is built on!”
Politicians will also be very keen to know
how the switch from SDLT to LVT affects different households. They all remember
the Great Poll Tax fiasco, and would be horrified of a repeat.
‘Winners & Losers’ is the name of this
game.
Winners from tax changes are happy to quietly
pocket their bonus. Losers will scream blue murder — and in the case of the
Poll Tax it brought down the Prime Minister.
While “No SDLT and an annual LVT at ½%“ may sound modest, it hides a nasty surprise for many house-buyers and would not
be much of a bargain. In my next posting I’ll look at ways that this particular
political time-bomb could be diffused.
The arithmetic of SDLT:
The rest of this post
explains how I arrived at my figure of ½%. If you don’t like statistics, or you
trust that I can do my sums right, there is no need to read on.
I’m also trying to hit a
moving target here. Rates of SDLT have been changed significantly of late,
especially by George Osborne when Chancellor.
SDLT has already been
devolved to Scotland and soon will be to Wales. The following generally applies
to England only.
Meanwhile back to the calculations
Where did I get the figure of ½ a percent of the land value?
‘Stamp Duty’ is not a huge revenue earner for
the government. It brings in about 1.5% of the total that HMRC (the UK taxman)
collects, that’s £8.5 billion out of a total tax-take of £477 billion (in 2015).
The Yield from SDLT
This graph[1]
shows the total tax take from SDLT in the last few years.
The yield from Stamp Duty
peaked at around £9 bn in 2007-08, slumped post the GFC (Great Financial
Crash), but by 2014 had climbed back to almost the same level. Although the rates of SDLT have been raised, the
number of transactions has risen and fallen as the fortunes of the housing
market have changed.
Back in the year 2007, just
before the Crash there were 1.8 million houses traded. After the slump this had
dropped to less than 700,000 in the 2009. Volumes have recovered a bit since
then, but not by much, and are still way below the peak.
This matters in terms of
revenue, because SDLT is only levied when a sale is made, so fewer sales mean
less tax revenue for the Chancellor.
Putting these two factors
together — rates of SDLT and number of transactions — let’s have a look at the
average SDLT revenue for each house bought:
Revenue per Transaction,
and how it has changed 2005-2015
(These are my own
calculations based on figures in previous references)
It is clear that the
Chancellor has been squeezing this source of revenue, with average contribution
going up from £3,000 to over £6,000 per property sold. Averages can be
deceptive.
One quarter of all
transactors are exempt and pay no SDLT.
A small number of upmarket
houses are being hit for huge amounts. If you buy a house for £1 million, in
2016 the SDLT bill is £43,750.
The impact of SDLT is
concentrated geographically as well, with just a handful of high-priced
boroughs mainly in London and the South-East accounting for a high proportion
of all SDLT the paid.
Whatever is proposed should be revenue neutral, keeping
up the revenue stream for the Chancellor. Will the amount be sufficient eventually to provide a similar or
better flow of revenue for the Chancellor? I say ‘eventually’ because the
Chancellor, rational fellow that he is (it has never been a she), will realise
that a future flow of funds can be discounted back to an equivalent
present-value lump-sum.
Detailed calculations are given in an article on my
website[2]
of how I worked out the LVT which could be substituted for the one-off SDLT
(but which would have recurred at each subsequent sale).
[1]
www.gov.uk/government/uploads/system/uploads/attachment_data/file/358908/AnnualStampTaxes-Release-Sep14.pdf)
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