Thursday, January 20, 2011

OECD calls for SDLT reform

OECD calls for abolition of stamp duty to revive housing market

The Organisation for Economic Co-operation and Development (OECD) has called for the abolition of stamp duty to revive England's housing market. OECD economists speaking at the launch of the OECD's report, Housing and the Economy: Policies for the Renovation, said the abolition of stamp duty would reduce barriers to entry in the housing market. Asa Johansson, OECD economist, said stamp duty should be replaced with an increased council tax where part of the funds went to local councils and part to the Treasury. She said: "I think stamp duty should be removed and replaced with a property tax based on the value on the house. "It adds on costs for people entering the market."

Posted by jack c @ 01:40 PM (2875 views)
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19 thoughts on “OECD calls for SDLT reform

  • mark wadsworth says:

    “I think stamp duty should be removed and replaced with a property tax based on the value on the house.”

    That’s music to my ears!

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  • Do the people who have payed stamp duty in the past get a refund then.

    Frankly I would rather one lump payement. I’m smelling the con already.

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  • I think this is unworkable with an ageing population. Over time house prices rise, and linking taxation to house prices, doesn’t necessarily cohere with people’s ability to pay.

    I don’t believe people should be forced out of a home they’ve lived in all their lives because of a sudden spike in house prices.

    For example imagine living in an outer london borough and suddenly that becoming the next ‘xzy’ and prices jumping dramatically.

    I think stamp duty should be paid, rather, when you sell the house, so that the hit doesn’t deter first timers entering the market.

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  • notyethomeless says:

    Some smart people in the OECD!

    (Hang on, don’t they write dictionaries?)

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  • Good idea to reduce stamp duty but I can’t imagine anyone putting up the council tax to pay for it. They haven’t even got the bottle to revalue the houses to reflect improvements. All those hideous loft extensions are tax free.

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  • I can see BTLers loving this, buy houses cheaper then pass the cost of the property tax onto tenants.

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  • Firsttimebuyer says:

    In part I agree with Cyril. Putting up Council Tax (not forgetting annual increases) in this climate, following a 2.5% increase in VAT doesn’t seem to be a balanced way forward.

    But I’m afraid as a first-time-buyer the only economic way forward for me to improve my living space is to extent downstairs and – yes wait for it – get my loft converted into a master suite. I promise though to do this tastefully.

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  • mark wadsworth says:

    TT, why? If houses are cheaper, and the occupant has to pay the tax anyway (whether as owner-occupier or tenant), then all things being equal there will be more owner-occupiers.

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  • MW…”Asa Johansson, OECD economist, said stamp duty should be replaced with an increased council tax where part of the funds went to local councils and part to the Treasury. She said: “I think stamp duty should be removed and replaced with a property tax based on the value on the house.”
    I rent and I pay council tax. If my landlord ask me to pay the stamp duty on the house he had just bought to let to me I’d tell him to naff off.

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  • Firsttimebuyer says:

    TT, I understand what you’re saying. I used to rent three years ago – it does seem an absurd scenario. I think what’s happening here, is that there’s another movement in the right direction. But I think the OECD need to re-focus on more than one situation and understand how this will affect a wider variety of people.

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  • mark wadsworth says:

    TT, imagine your landlords tax rate went up (because HMRC caught up with him) or the interest on his mortgage went up, or insurance companies increased his premiums. Would he be able to ask you to pay these, or would you tell him to naff off?

    Ergo, why is a higher council tax/property tax any different? The main way he can pass it on is if other taxes are reduced – but if taxes are not reduced and they hike council tax, then any rent increases are offset equal and opposite by reductions in house prices. Which is good news, AFAICS.

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  • MW, there are things which are generally accepted as the liability of the landlord and others which are generally accepted as the liability of the tenant. All those you list are the landlords, Council tax is the tenants.

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  • greenshootsandleaves says:

    Where does the bit about reviving ***England’s*** property market come from?

    It’s unlikely to have come from the OECD, where I would expect the need to use ‘United Kingdom’ to be drilled into all and sundry from day one, viz.:

    ‘The OECD report found the United Kingdom was among the nine OECD countries showing the largest increase in real housing prices over the period of 1980 and 2008.
    During this period housing prices increased by over 90 per cent.’
    (Incidentally, this suggests that the patient is a bit bloated and may be in need not of reviving but of a good rest)

    So, was that bit perchance added by an anglocentric VI ?

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  • mark wadsworth says:

    TT, it’s got to with legal and economic incidence of taxes.

    We can safely assume that landlords are charging as much as tenants are willing to pay. Any increase in the landlord’s costs cannot be passed on. Similarly, a tenant has a fixed budget for housing, i.e. rent+council tax. The total figure is a constant, so if council tax goes up, rent goes down accordingly.

    Consider two landlords – one charges £500 a month rent for a house with £200 a month council tax payable by tenant. Another landlord owns an identical house in the same area and doesn’t like all this mucking about with tenants who leave the house without paying the council tax and he offers to let it out for a rent INCLUSIVE of council tax. How much does he charge? £700 of course.

    It all depends on supply and demand curves. With housing, supply curve is price inelastic (vertical) and demand is price elastic (slopes downwards), so taxes on housing are born by supplier. Conversely, with tobacco duty (ignoring smuggling), demand is price inelastic because smokers are addicts and supply is price elastic (sloping gently upwards) so the taxes are largely paid by the consumer.

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  • Mark, I feel weak at thought of arguing with you about taxes, but a quick bit of Googling assures me that unless it’s a “House in Mulitple Occupation” then the tenant is responsible for Council tax. Whilst I’m sure that there are some supply and demand issues arguments that say that if one goes up then the other must come down, but I would expect most landlords to make a net gain if this were to happen. It would be like when the Euro was introduced and consumers across Europe got shafted by the new price of everything.

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  • If stamp duty is removed, then the sellers will just add the same amount to the asking price. Also, will I receive a refund on the 3% stamp duty I paid last year??

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  • mark wadsworth says:

    TT, this is one of those simple economic ideas that is borne out in practice. It can be easily observed in real life.

    For sure the tenant is LEGALLY responsible for the council tax, this does not make very much difference in real life as my simple example shows.

    But you see this is where we LVTers face headwinds from the Home-Owner-Ists, who say, simultaneously, that LVT would push house price down (correct, unless other taxes were cut £ for £ in which case it wouldn’t make much difference) and in the next breath say that ‘landlods would pass it on to tenants’ (incorrect, they can only pass it on if other taxes are cut £ for £). In any event, this whole crocodile tears about “tenants” is a complete red herring, because the HOists know perfectly well that an owner occupier cannot pass on the tax to anybody (unless, of course, taxes on business/employment are reduced, in which case gross wages go up).

    Phils, correct. But while the SDLT raises asking price, the higher council tax depresses it.

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  • ontheotherhand says:

    MW is correct. Imagine income taxes go up for everybody including tenants. This is clearly a new cost that the tenant legally has to bear, but the effect is that all tenants have less money available for rent, and rents will go down.

    MW I wonder if there is data there in council taxes to support the notion that LVT moderates prices. There are streets in London with identical properties where one side is one council and the other another council. The different council tax should show up in the selling prices? Or what about places with ground rent and rip off annual maintenance charges. Surely this should show up as being less per square ft than a nearby place without this annual cost?

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  • mark wadsworth says:

    OTOH 17, “There are streets in London with identical properties where one side is one council and the other another council. The different council tax should show up in the selling prices [or rents]?”

    Correct, and my LVT chums know examples of these streets, but I (myself) don’t know the boroughs involved or the actual streets.

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