Fiscal drag sees stamp duty revenue soar
Published: 26 August 2014 | Author: Bernard Clarke
Stamp duty revenue from property sales topped £1 billion in July – the first time that monthly revenue has reached that total since the middle of 2007. But despite soaring revenue, stamp duty is currently levied on a much smaller number of transactions than seven years ago. The numbers show the extent to which fiscal drag is boosting tax income from the housing market.
According to HM Revenue & Customs, income from stamp duty land tax totalled almost £1.1 billion in July, a level similar to the middle of 2007, when stamp duty revenue also briefly topped £1 billion a month. Revenue subsequently collapsed to just over £200 million in March 2009, as the number of transactions plummeted and property prices fell.
HMRC data show that tax receipts in the first half of this year were based on property sales of just over 600,000. But in 2007, when stamp duty receipts were at similar levels, there were 850,000 transactions in the first half of the year.
Those figures show the effects of fiscal drag. Rising property values produce a greater tax yield partly because stamp duty is levied on the whole of the price paid for the property, but also because higher rates of duty apply to an increasing proportion of sales.
Despite the recent recovery of the housing market, the number of transactions remains low by historical standards. Stamp duty revenue is therefore set to increase further as property transactions edge upwards.
However, a policy of increasing tax revenue from the housing market is at odds with separate government initiatives, like Help to Buy, that are intended to help activity levels recover. Stamp duty reduces liquidity in the housing market and mobility – acting, in effect, as a barrier to people moving in response both to their personal needs and those of the wider economy.
Reform of stamp duty is long overdue. Levying tax at the highest rate on the whole of the property price is particularly perverse, and has led to widespread criticism of the tax from a variety of commentators.