The Chartered Institute of Taxation (CIOT) has highlighted HM Revenue and Customs (HMRC) research that may cast doubt on the effectiveness of plans to abolish stamp duty for first-time house buyers.
The chancellor, Philip Hammond, announced in the Budget that the government would abolish Stamp Duty Land Tax (SDLT) for first-time house buyers on properties worth less than £300,000 effective today (22 November). His speech emphasised the difference between a temporary holiday and a permanent cut.
But the CIOT highlighted a November 2011 report from HMRC which evaluated the introduction of a temporary SDLT relief on transactions between March 2010 and 2012 initiated by the last Labour government. The evaluation concluded that the policy had little effect on improving the affordability of homes, with first-time house buyer transactions ‘around 0-2 per cent higher than they would have been in the absence of the relief’1. It also suggested that ‘that the majority of the 1 per cent tax relief was capitalised in higher prices’.
The Institute recognises that the effect of a permanent cut in today’s conditions could be different from that of a temporary cut several years ago. But it called on the government to commit to an evaluation of the policy to ensure that it meets its policy intent of widening access to home ownership for young people in a cost-effective way.
Commenting, Brian Slater, chair of the CIOT’s Property taxes sub-committee, said:
“The government has set its stall on delivering a budget that supports investment in the UK’s housing market, but the fact that its own research concluded that a similar measure had little or no impact in stimulating first-time buyer transactions must cast doubt on the potential effectiveness of a stamp duty cut for first-time house buyers.
“Most tax measures are implemented on the basis of how much they will raise, how much they will cost and whether they will achieve the government’s stated policy intent.
“With HMRC itself concluding that a similar measure in the past failed to deliver on the objective of improving the affordability of home ownership, the government should commit to an evaluation of the policy at the earliest possible opportunity in order to determine its effectiveness.
“It may well be that a permanent relief will have a different behavioural impact than a temporary reprieve, but nevertheless the tension between the evaluation of the last measure and this proposal does underline the need for reliefs of this nature to be properly considered, consulted on and evaluated.
“The government’s policy paper states that the measure will support home ownership and first-time buyers by reducing upfront costs2. Clearly, this cost reduction will only be realised to the extent that house prices in the market do not rise to reflect the existence of the relief”.
In its Better Budgets: making tax policy better report, the CIOT, Institute for Government and Institute for Fiscal Studies set out 10 steps for improving the tax policy making process, including improved evaluation of tax measures3.
Notes for editors
1. A copy of the report ‘HMRC: Evaluating the Impact of Stamp Duty Land Tax First Time Buyer’s Relief’ can be found here.
2. The policy paper, Stamp Duty Land Tax: relief for first time buyers can be found here.
3. Recommendation 10 of the Better Budgets: making tax policy better report (Institutionalise and enable evaluations of tax measures) states:
“The political (and technical) nature of much of tax policy can inhibit effective upfront scrutiny. That places more weight on the importance of effective evaluation, but at the moment this is poorly done. There needs to be effective and routine post-legislative review of whether measures are achieving their objectives at an acceptable cost, and Parliament should hold government to account for this. Data needs to be more accessible to allow outside researchers to evaluate policy”.
4. The Chartered Institute of Taxation (CIOT)
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Chris Young, External Relations Officer, 07900 241 584; firstname.lastname@example.org (Out of hours contact: George Crozier, 07740 477 374)More Articles by Chartered Institute of Taxation (CIOT) ...