Labour considers overhaul of stamp duty regime
The Labour party is considering plans to overhaul the current stamp duty system by phasing out the charge for purchasers and increasing capital gains tax on second property sales
6 Jun 2019
The proposals are set out in an independent review of property tax and land usage, commissioned by Labour. The report, entitled Land for Money, sets out a number of radical proposals to shift the tax burden and address the housing crisis, ‘soaring inequality and exclusion; [and] the massive cost of renting or buying a decent home’.
At the centre of the plans are proposals for a radical overhaul of the current tax regime, to create a tax environment ‘which would act as a deterrent to the use of homes as financial assets, reduce the tax paid by the majority of households, and encourage more efficient use of the housing stock’.
The report authors, including George Monbiot, are calling for a radical overhaul of stamp duty land tax (SDLT) with the abolition of the tax for purchasers buying residential property as their primary residence, with the onus moving to second home owners and buy-to-let landlords with property portfolios.
In 2017-18, the government raised £13.6bn from property transaction taxes, and this is expected to rise to £17.2bn by 2023-24, according to Budget 2018 figures, issued in the Red Book.
There have been significant reforms to SDLT since March 2016 when then Chancellor George Osborne introduced a progressive SDLT regime announced at Budget 2015 during the Coalition government. This brought in a slice-based approach for calculating the tax, paid by purchasers of property, and removed the cliff edge approach previously in force, where the purchase price determined the rate paid. There are also tax breaks for first-time buyers for private and share ownership purchases, who benefit from SDLT relief, extended in Budget 2018.
Another suggestion is to make home owners pay capital gains tax on the profits of their sales, while it is also keen on increasing the rate of capital gains tax (CGT) for second home sales and investment properties from the current 20% rate to reflect income tax rates up to 40%. The Resolution Foundation has estimated that the CGT exemption for residential property cost the government £28bn in 2017-18.
The report authors take a more radical position than Labour’s current stance on offshore purchases, recommending a 15% tax on the price of any land or real estate when purchased by companies directly, or indirectly, owned in secrecy jurisdictions.
The report also states that ‘in the interests of transparency, and to ensure that land is not used for financial speculation, tax avoidance or money laundering’, there should be a new tax targeted at offshore investors with the introduction of an offshore company property tax payable by companies based, or beneficially owned, in secrecy jurisdictions. It is also suggesting an increase in the rates charged for the annual tax on enveloped dwellings (ATED), an annual tax charge for properties held in offshore structures, as well as the removal of the ATED exemption for properties under £500,000. Currently the government is consulting on plans to levy a 1% SDLT surcharge on overseas purchasers of residential property.
It is also calling for the abolition of the current council tax system, to be replaced by a progressive property tax, stating that ‘this should be payable by owners, not tenants. The valuation of properties for tax purposes should be updated annually, and empty homes and second homes should automatically be taxed at a higher rate. We also recommend a surcharge for all properties owned by those who are not resident in the UK for tax purposes’.
The report also calls for greater transparency over land and property ownership, reflecting the current government’s plans to introduce a register of beneficial ownership for non-UK based property owners from 2022.
The proposals call for all information about land ownership, control, subsidies and planning should be published as open data. There should be free and open access to information on who owns land, including the identities of the beneficial owners.
As part of the transparency agenda, it would also like to see the creation of a fully public register of charges and options over land titles, and public databases of the prices paid for all property and of public subsidies paid on land. Land should also be registered with the Land Registry as a requirement for receiving subsidies and tax breaks.
Farmland and tax reliefs
Following Freedom of Information figures obtained by Tax Justice UK that show the level of tax relief gained by farmers and landowners was an estimated £666m a year through use of business property and agricultural property reliefs to offset inheritance tax bills, the Land report also picks up on use of specialist tax breaks used by landowners and the failure to prevent abuse of the system.
It stated: ‘To ensure that farmland is reserved for farmers and to prevent it from being used for tax avoidance and speculation, we propose that a new English Land Commission undertakes a review of tax exemptions given to landowners. This should aim to restrain these fiscal privileges without harming family farms. The removal of similar tax exemptions on woodlands and forestry should also be considered.’
John McDonnell, shadow Chancellor said: ‘Labour will tackle the scourge of tax avoidance and review tax reliefs to make sure the rich pay their fair share towards the public services we all need.’
The Labour party will review the proposals as part of its pre-election manifesto review.