Government research casts doubt on effectiveness of stamp duty cut

THE Chartered Institute of Taxation (CIOT) has highlighted HM Revenue and Customs (HMRC) research that may cast doubt on the effectiveness of plans to abolish stamp duty for 1st time house buyers. The Chancellor, Philip Hammond, announced in the Budget that the Government would abolish Stamp Duty Land Tax (SDLT) for 1st time house buyers on properties worth less than ₤300,000, effective 22 November 2017. His speech emphasised the difference between a temporary holiday and a permanent cut. But the CIOT highlighted a November 2011 report from HMRC which evaluated the introduction of a temporary SDLT relief on transactions between March 2010 and 2012 initiated by the last Labour Government. The evaluation concluded that the policy had little effect on improving the affordability of homes, with 1st time house buyer transactions:- 'around 0% to 2% higher than they would have been in the absence of the relief.' It also suggested that:- 'that the majority of the 1% Tax relief was capitalised in higher prices.' The Institute recognises that the effect of a permanent cut in today's conditions could be different from that of a temporary cut several years ago. But it called on the Government to commit to an evaluation of the policy to ensure that it meets its policy intent of widening access to home ownership for young people in a cost effective way. Commenting, Brian Slater, chair of the CIOT's Property Taxes Sub Committee, said:- "The Government has set its stall on delivering a budget that supports investment in the UK's housing market, but the fact that its own research concluded that a similar measure had little or no impact in stimulating 1st time buyer transactions must cast doubt on the potential effectiveness of a stamp duty cut for 1st time house buyers.  Most Tax measures are implemented on the basis of how much they will raise, how much they will cost and whether they will achieve the Government's stated policy intent. With HMRC itself concluding that a similar measure in the past failed to deliver on the objective of improving the affordability of home ownership, the Government should commit to an evaluation of the policy at the earliest possible opportunity in order to determine its effectiveness. It may well be that a permanent relief will have a different behavioural impact than a temporary reprieve, but nevertheless the tension between the evaluation of the last measure and this proposal does underline the need for reliefs of this nature to be properly considered, consulted on and evaluated. The Government's policy paper states that the measure will support home ownership and 1st time buyers by reducing upfront costs. Clearly, this cost reduction will only be realised to the extent that house prices in the market do not rise to reflect the existence of the relief."  In its Better Budgets... making Tax policy better report, the CIOT, Institute for Government and Institute for Fiscal Studies set out 10 steps for improving the Tax policy making process, including improved evaluation of Tax measures.  What are your views on this?  Please email us your thoughts to our Newsroom via:- News24@SouthportReporter.com.