Following the cancellation of the Autumn Budget, the Spring Budget is due to take place on 3 March. Coming just a few months after the UK's departure from the EU and in the midst of a devastating global pandemic, we consider some of the key tax issues which might feature in the Chancellor's announcements.
One question on the minds of many is whether the Chancellor will extend the temporary increase of the nil rate band for acquisitions of residential property. Since 8 July 2020, purchasers have enjoyed savings of up to £15,000 following the increase in the stamp duty land tax ('SDLT') threshold from £125,000 to £500,000. Even purchasers of second homes (and corporate purchasers) have benefitted from an effective 50% SDLT saving on the first £500,000 of consideration, despite the continued application of the 3% higher rate (on top of the revised rates) for purchases of additional dwellings or acquisitions by companies.
The introduction of the so-called 'stamp duty holiday' has brought about a sharp increase in housing market activity and a corresponding rise in house prices. According to figures from the Office for National Statistics in mid-January, prices are up 7.6% from a year ago, the highest annual growth since 2016.
However, the stamp duty holiday is due to come to an end on 31 March 2021. In addition, the 1 April 2021 heralds the introduction of a new 2% SDLT surcharge on acquisitions of residential property by non-residents (the 'Surcharge'). The Surcharge will apply to transactions with an effective date (usually completion) on or after 1 April 2021 where (i) one or more purchasers is non-resident, (ii) the property being acquired is residential and (iii) the consideration is £40,000 or more. The Surcharge will apply in addition to the 3% higher rate on the acquisition of second homes or acquisitions by companies. As a result, the top rate of SDLT will be a whopping 17%. For further information on the Surcharge, please see our recent article.
It is feared that the double blow of the end of the stamp duty holiday and the introduction of the Surcharge could cause property values to fall and housing market activity to drop significantly. In addition, many buyers currently caught up in the conveyancing process may be forced to pull out of purchases that suddenly become unaffordable if they fail to complete on or before the 31 March deadline.
Many in the property sector have called on the Treasury to extend the stamp duty holiday (or at least to extend and taper the relief for those who have already agreed sales). Certain newspapers have joined the clamour, with the Telegraph launching a campaign (Stamp Out The Duty) to extend the stamp duty holiday permanently (or scrap SDLT altogether). There is clearly some momentum behind such calls, leading to a debate in Parliament at the beginning of the month. Certain newspapers are now reporting that the Chancellor does intend to extend the stamp duty holiday until the end of June, which will hopefully give the property market a boost to in the short term. No mention has been made as to whether the introduction of the Surcharge may also be delayed.
Whatever the Chancellor decides, it is unlikely that we will see any sweeping changes to SDLT in the Spring Budget. However, there are rumours that the Government is considering a more radical overhaul of property taxes in the longer term. At its most extreme, it is suggested that this could involve the replacement of SDLT and council tax with a new proportional property tax, levied on the existing values of homes. This will be one to watch.