Stamp Duty (Land Transaction Tax)

Good morning - I have been asked to reply to a complaint from a small developer, about the level of stamp duty payable on second homes. He is suggesting he would buy and develop more empty homes were it not for the level of stamp duty (soon to be Land Transaction Tax in Wales) - it is my (very limited) understanding that the Welsh Ministers considered the level of tax as a means of helping first time buyers and large developers - more than small developers. -I am certainly not best placed to answer his query and I will be referring him to HMRC but I am wondering if any local authorities or networks have thought about lobbying on this issue? Any comments would be appreciated...

 

Thanks

Forums: 
tax and VAT

Hi Eleanor

Rightly or wrongly, as we value the interventions of developers, we did raise the issue with the government when they consulted on this new measure. You can see our response here. 

However, it is debatable how serious the issue actually is, even if raising it as a general strategic issue does make some sense. The 'evidence' would be empties languishing long-term that might otherwise be bought by developers - but how you would demonstrate that they remained empty only because of SDLT is not at all clear. And you would have to look at the bigger picture as discussed further below.

We made the point in our consultation response that in a rational market, if a developer wants to buy a property and has to pay more tax then they should reduce their offer accordingly. The only circumstance in which that would equate to a property remaining empty would be:

  1. owner declines to sell because they think the property should be worth more
  2. the property is bought by an owner-occupier instead who is able to offer a bit more money because they are not paying the tax

Of these scenarios, if (2) occurs, then the surcharge has achieved exactly what it was supposed to achieve by skewing the market towards owner-occupiers and away from - say - buy-to-let. We could not reasonably want to challenge that outcome or that policy.

If (1) occurs then you can scarcely blame the government if owners of empty properties want to continue to lose money by clinging on for unrealistic values.  Here the assumption would have to be that only a  developer could buy the property because of mortgageability issues- otherwise we might expect to see outcome (2), which is not a problem.

Essentially, no one wants to pay tax, and everyone thinks up reasons why they should pay less. It would be interesting to explore with your developer the actual circumstances where they did not pursue an opportunity presented by an empty home, what then happened to the home, and what they did instead with their money.

I suspect the real outcomes might not be quite as black-and-white as regards the impact of the SDLT surcharge as some might want us to believe. There may be empty homes officers in low-demand areas that could throw more light on this.