James Max: Abolish stamp duty now and the economy will grow
Stamp duty is strangling the economy argues LBC radio presenter James Max. We must abolish it now
Stamp duty is a pernicious tax. Either it should be reformed or abolished altogether.
Recent changes by the government have further complicated a system that desperately needs reform.
A system that is haemorrhaging the property market and a system that is counterproductive for our economic wellbeing.
If you are of the view that anyone who can buy an expensive property should pay a large dollop of tax – the full name being stamp duty Land Tax (SDLT) – then I am going to face an uphill battle to persuade you otherwise.
But I’ll try all the same.
I think tax should be simple. It should be based on income generated, profit and capital gain. Transaction tax simply sucks money out of the economy whilst stinging innocents along the way.
Not convinced? Think about your pension. Dull, perhaps, to do so, however your pension fund will have a mix of assets in its portfolio.
“How many times do we hear that we have a housing shortage? It’s not rocket science. Reduce the barriers to entry and investment will occur”
Traditionally pension funds have invested between 8 – 15% of their assets in real estate. Commercial real estate has different SDLT rates than residential (capped at 4% for properties above £500,000). Every time an asset is traded the tax is payable. For shares it’s 0.5%.
Should one asset class attract a higher transaction tax than another? I don’t think so.
Not all residential properties are owner occupied or indeed primary residences. Sometimes it is held as an investment.
If you want to attract investors to a sector, you don’t put barriers to entry. Taxing capital rather than income, profit or performance is a disincentive. How many times do we hear that we have a housing shortage? Or new jobs could be created if only we had more construction?
It’s not rocket science. Reduce the barriers to entry and investment will occur.
But hang on. Let’s clobber the rich. After all if you can afford to buy a house worth more than £2 million, what’s £140,000 going to do to you?
Exactly. It’s going to stop you moving unless you have to.
What happens when people move? They hire estate agents. And lawyers. And removal firms. They go and buy furniture and have kitchens and bathrooms updated, carpets replaced, curtains made while they pop in to buy new sheets or crockery, beds and TVs. Get the picture?
Stop people moving and you take another huge wedge of money out of the economy.
Meanwhile we have ridiculous articles which classify those who avoid paying SDLT as “morally repugnant”.
Yet they pick and choose their commentators to tell one side of the story: the side of the story that bangs on about fairness without being fair to those who work hard.
If you are buying a property then chances are you have worked hard at your job. You have paid income tax, which is too high anyway and you may well be taking out a mortgage.
You have to pay tax on an asset where you are borrowing the money to purchase it.
Yet do people like Richard Murphy from the rather dubiously named Tax Research LLP give you all the arguments? I don’t think so. Yet he’s quoted as some sort of guru on matters relating to tax and morality. In my opinion SDLT is as vile as it is repugnant.
“The root cause of the problem is that this tax is a tax on mobility. Mobility of people and of capital”
One other negative impact of this tax that is exacerbating the market stresses is the simple matter of allowing people to move freely to the properties they need for various stages of their lives.
More expensive houses tend to be owned by older people. As their children grow up and leave home, so the need for a larger property diminishes. Yet many people are staying put.
In a flat housing market, even though you may be downsizing, why create an extra tax bill for yourself? Alongside all the other sales costs, fees and moving expenses.
The root cause of the problem is that this tax is a tax on mobility. Mobility of people and of capital.
We have different transaction tax rates for different asset classes. That’s just wrong.
In addition we have a tax system that is punishing hard work. Punishing investment and crippling a market that needs to function well and freely for everyone. Indeed a property market that’s more liquid at the top will stimulate fees, growth and expenditure.
It will also encourage investment, supply and enhance returns.
Even for those unable to get onto the housing ladder, SDLT punishes you. Landlords have to pay more and will inevitably charge more to receive an adequate return on their investment.
My plan would be simple. At the very least SDLT should be abolished for your primary residence. It should be put in line for company and share transactions to make property both residential and commercial a more viable investment class.
In addition to that, we need to think about simplifying the system. I don’t like to see a tax where some can avoid paying it. However, I certainly don’t like to see a tax that punishes everyone for no other reason than it looks good for the politicians and those politically motivated to take as much as they can.
I rest my case. SDLT is a bad tax. And anyone advocating it or indeed the current system needs his or her head examined.
James Max presents Weekend Breakfast every Saturday and Sunday mornings on London’s Biggest Conversation, LBC 97.3 FM. He is a qualified surveyor and worked in property and finance for 15 years. After working for one of the country’s leading property advisory firms, he completed healthy stints in investment banking and private equity, before becoming a candidate on The Apprentice, which launched a career in broadcast media. Visit JamesMax.co.uk.