UK stamp duty cut will benefit wealthier and raise inflation, say experts | Stamp duty
The government has warned that cuts to stamp duty will hurt first-home buyers and spark an inflationary bubble in the housing market as house prices rise at the fastest pace in nearly 20 years.
In its latest report detailing the tax cuts backed by Prime Minister Liz Truss, The Times says Prime Minister Kwasi Kwarteng is preparing to include “caps to death” in his small budget The rollout of aggressive stamp duty cuts heads to the Commons on Friday.
However, economists and property experts say measures to further stimulate an already red-hot housing market will benefit wealthy individuals best and risk being priced in for first-time buyers.
Less than a year before the expiry of stamp duty relief used by former chancellor Rishi Sunak during the Covid-19 pandemic, analysts say it will mostly benefit London and the south-east, with little impact elsewhere in the UK. big.
“It’s short-termism at its worst,” said Lewis Shaw, founder of Mansfield-based Shaw Financial Services. “This move will push up house prices, fuel inflation and further price first-home buyers’ right to buy.
“If anyone asks me how to push an already overheated housing market into dangerous bubble territory and make it worse for everyone, it’s this policy.”
Stamp duty is paid by buyers of land or property in England and Northern Ireland, with higher rates above certain thresholds. Scotland and Wales have separate land taxes.
Shares of British homebuilders rose in London on Wednesday morning, with FTSE 100 companies Barratt, Persimmon, Taylor Wimpey and Berkeley rising between 3% and 6%, the best performers in London. blue chip index.
UK average House prices rose 15.5% In the year to July, annual inflation was the highest since May 2003, according to official data.
Many economists see stamp duty as a “bad tax“Because it discourages liquidity because it is paid by homebuyers, not sellers. Several experts have called for a radical change in the way property is taxed, including changes to the council tax system.
Stamp duty cuts could help offset a possible slowdown in the housing market as the Bank of England raises interest rates, with borrowing costs expected to hit 4.5% next year, adding to the financial stress for homebuyers.
However, analysts have warned that without broader reforms, as well as efforts to increase housing supply, the measure will fuel inflation and do little for those trying to climb the housing ladder.
“As borrowing becomes more expensive, the market already looks set to shift towards higher-income, wealthier borrowers, rather than first-home buyers,” said property market analyst Neil Hudson. “Stamp duty changes could be driven by further Reduce the purchase cost for investors to speed up the process [and] Second home buyer. “
Tax cuts will also come at a high price as the government prepares multi-billion-pound tax cuts on corporate profits, national insurance and a freeze on energy prices. In the UK, property transaction tax generates more than £15 billion in fiscal revenue each year.
Truss believes that driving economic development is her main focus, aside from the direct impact of her policy measures on the rich or the poor.
Measures to stimulate the housing market are likely to stimulate demand for related goods and services, such as real estate agents, lawyers, movers, construction trades, furniture and white goods, thereby stimulating broader economic activity.
However, experts say the introduction of new tax relief soon after Sunak’s stamp duty holiday will limit its impact. In addition to the rush to relocate for more space amid the Covid-19 pandemic, the stamp duty holiday spurred a 43 per cent increase in property transactions last year.
A report this summer by the Organisation for Economic Co-operation and Development found that UK property taxes are outdated in favour of a wealthy elite. It warned that efforts to stimulate economic growth by cutting taxes on property transactions were propping up sky-high prices.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “The only reason these holidays work is because people feel like they have a small window of opportunity to take advantage of, otherwise they would miss out. When they think they can wait for the next one, they will start to become Not so effective.
“Even if it does stimulate demand, it ignores the fact that the real brake on the housing market is a severe shortage of supply.”