Friday 10 July 2020

Tax incidence

from Yahoo Finance:

[The SDLT holiday] will reduce many buyers’ tax bills. The chancellor said the changes meant almost nine in 10 buyers will pay no stamp duty land tax (SDLT) at all on transactions.

Treasury analysis suggests buyers would save £4,500 on the average property purchase, though analysis by estate agent Barrow and Forester indicated lower savings of £2,465 in England. But the reforms are mainly intended to drive additional sales in the property market, as a significant part of Britain’s economy...

UK housebuilders’ share prices have been rising all week after the plans were first reported over the weekend, with shares in Persimmon (PSN.L) up almost 10% since last Friday.... Several experts warned the temporary nature of the measures mean the tax cuts may have unintended consequences, however.

Observers pointed out transactions and prices may spike as buyers rush to complete before the holiday expires next March, followed by a sudden drop. In the short term, buyers may save money on stamp duty, but if tax cuts start pushing up demand they may face higher asking prices.


SDLT is, taken in isolation, a dreadful tax, but it is a bit like a lump-sum LVT paid in advance, so not the worst tax. (The same goes for Inheritance Tax - it is like a lump-sum LVT paid in arrears. Same goes for Council Tax - it is like a very low level LVT-cum-Poll Tax payable annually. Between them SDLT and IHT raise 50% as much as Council Tax, so why they don't just merge those two into an enhanced Council Tax is an enduring mystery to me.)

But the fact that the share prices of major Tory party donors land bankers home builders have risen so sharply is a bit of a clue that the 'observers' are correct - the SDLT cut will benefit sellers rather than buyers, even though it is the buyer who legally has to pay it.

11 comments:

Sackerson said...
This comment has been removed by the author.
Sackerson said...

Will this tax cut stimulate consumer demand, or will it result in further house price increases?

Mark Wadsworth said...

S, both.

mombers said...

How about a budget where the first announcement is that there is a windfall tax on any landowner share movements due to budget bungs?

Mark Wadsworth said...

M, the land bankers would cut off their donations immediately and the Tories know it (not that Labour were much better).

Bayard said...

M, a rise in share prices doesn't benefit the company themselves, unless they plan to issue more shares.

Mark, just another example about most government policy being aimed at giving money to landowners.

Mark Wadsworth said...

B, the directors make the donations, the directors have share price related bonus schemes.

Piotr Wasik said...

but wouldn't Persimmon shares go up even if the SDLT burden was borne by buyers? e.g. sellers' shares could go up not only because of expected higher sale price, but also because of expected of higher sale volume? I agree it is a "clue" that tax incidence is on the seller, but not an evidence.

Mark Wadsworth said...

PW, you could argue that house builder shares only go up because of more volume at constant prices. I don't agree, but the argument is plausible.

Bayard said...

PW, I would have thought that the number of people who would now be able to buy because of the stamp duty who couldn't afford to before is far too small to make any difference to sales volumes.

L fairfax said...

Of course if you are moving to a similar size property then you really gain.
For example you have a price worth £300K and want to buy a similar size one.
The cost of moving before hand was 1% estate agent - £3K, £2K solicitor, £1K moving costs plus IIRC £3K stamp duty total £9K.
Now it would be about £6k.
This is great for labour mobility! Shame there are not many jobs.
Personally I would like to get rid of stamp duty and raise the same or more in LVT to stop house prices rising but to make moving possible.