The stamp duty land tax (SDLT) holiday is not behind the 13.2% rise in house prices over the last 12 months, claims research by the Resolution Foundation
The study suggests that the rise in house prices has been fuelled by low interest rates and the ‘race for space’ as people move away from cities into rural areas.
The think tank considered that the tax holiday was actually ‘wasteful’ for HMRC with the Exchequer losing around £4.4bn in taxes in England and Northern Ireland as a result, although the Treasury has said that the policy ‘saved jobs’ by ‘stimulating the housing market’.
The research found that 44% of respondents felt that the impact of Covid-19 has made living in a city less appealing with 10% of respondents having moved away from a city or urban area in the last 12 months and almost a quarter, 24%, no longer commuting into a city for work.
For the last few decades, the pace of price growth in UK cities far outstripped that of rural areas but the rise in home working has caused house prices in rural areas to skyrocket due to the demand. According to the property site Rightmove, Wales has seen the biggest increase with a 2.3% rise in the last month and a 10.9% increase year-on-year.
The think tank stated that the trend of a ‘more attractive rural lifestyle’ looks set to continue.
David Hannah, principal consultant at Cornerstone Tax said: ‘The past year has been unprecedented in the UK housing market; prices have skyrocketed as buyers scramble for that extra bit of garden space or an extra room for a proper home office. It seems the impact of the stamp duty holiday may have been less than we expected in terms of activity but it seems likely that saving thousands on stamp duty has encouraged buyers to offer that little bit extra.
‘The findings from our report confirm what we have thought for much of the past 12 months, that living in a city has undergone a permanent shift in appeal. The clients we have advised during the pandemic have almost exclusively been looking for more space, both inside and outside the property.’
When the stamp duty holiday was introduced in England and Northern Ireland in July 2020, it was designed to boost the property market by helping buyers whose finances were affected by Covid-19, with savings of up to £15,000 per home.
The report stated if ‘the cuts to transaction taxes have been the overwhelming driver of the house price trends observed over the past 12 months than we would expect to see higher growth in areas where the savings from the change in policy have been most significant as a share of the house price’.
The think tank said that similar house price rises occurred in the US, France, Germany, Canada, and Australia without the tax holiday so the assertion that the rise in prices is due to the tax holidays is ‘somewhat wide of the mark’.
A Treasury spokesperson said: ‘The temporary stamp duty cut is helping to protect hundreds of thousands of jobs which rely on the property market by stimulating house moves.
‘Its time-limited nature is what has encouraged people to take advantage of the scheme.’
From 1 July 2021, the nil rate band was reduced to £250,000 until 30 September 2021 before returning to the usual £125,000 on 1 October 2021. This means that nearly nine out of 10 people buying a new home currently pay no SDLT at all.