Simple example of how current Stamp Duty has strangled developer lifeblood

Tuesday, September 03, 2013 by Ed Mead

 

Back in the good old days when Stamp Duty was 1% people bought and sold properties for a small profit. It meant there was plenty of local employment, people moved around and old housing stock was regularly updated and improved. The stupid thing is that the Gov’t in its wisdom has killed off what was actually a bigger tax take despite lower Stamp Duty and created a moribund property market where volumes continue to struggle and developers are giving up.

 

Let’s look at a reasonable example.

 

Firstly a property purchased in the 1% era;

 

Purchase price £275k, small developer would buy, spend £25k and sell on for £350k. There are plenty of costs but assuming 2% plus VAT agents’ fees either end still a worthwhile project.

 

HMRCs take on this transaction would be (assuming 15% VAT as it was then)

1% Stamp £2750

VAT on works at £25k, £3750

VAT on agents fees of £1875

VAT on surveyors and solicitors of c. £1200

 

This would give a total tax take of £9575

 

In the current climate the Stamp Duty payable at 3% , i.e. and extra £5500 would make this already skinny deal unworkable and so it wouldn’t happen, especially with VAT at 20%.

 

So in this case HMRC gets nothing in an attempt to chase Stamp Duty of £8250 which is less than they would have got overall in the first place, none of which takes into account the beneficial effect all this has on local employment or even the money injected into the economy by the new occupants and the developer spending their profit.

 

A simple illustration of how the politicisation of SDLT has created a moribund property market incapable of maintaining employment whilst probably costing the exchequer money.