The Council of Mortgage Lenders (CML) has responded to HM Treasury’s consultation on the proposal of a 3% surcharge on Stamp Duty Land Tax (SDLT) for second properties, urging reforms to its implementation plans and warning that the surcharge may cause more problems than it solves.
The CML believes that forthcoming changes in tax relief and potential macroprudential interventions in the buy to let market are already set to slow buy to let activity.
The additional introduction of a SDLT surcharge could well dampen investor enthusiasm to the point where the availability of private rented property is reduced, without necessarily increasing the opportunity for households to become home-owners, the council warns.
Currently, around a fifth of households rent within the private sector and the CML’s view is that there is a real risk that the SDLT increase could result in landlords charging higher rents.
Ultimately this would make it more difficult for tenants to save enough capital to allow them to get on the property ladder, which is the reverse of what the Treasury hopes the change in policy will achieve.
The CML’s suggestions are as follows:
- Under current proposals, some people will be caught by the requirement to pay the 3% surcharge even when they are buying their main residence (for example, if they have a short-term overlap between owning their previous home and acquiring their new one, perhaps as a result of problems in the housing chain), so it would be better to allow people to defer their payment of SDLT for 18 months subject to conditions, rather than require them to pay it upfront and then potentially reclaim it in the form of a rebate. This would be both fairer and more efficient.
- The government should clarify whether its policy intention is to favour institutions facilitating new-build activity, or new-build activity more generally. If the policy focus is on the perceived benefit arising from the economic activity, then the proposal should recognise the potential for even small-scale and individual investors to contribute to this through off-plan purchases, and should not discriminate against them.
Paul Smee, director general of the CML, said:
“Our longstanding view is that stamp duty is a blunt policy lever. Given the complexity of the proposals, we also suspect that in practical terms the surcharge could cause more problems than it solves.
We urge the government at least to move away from a position where people will have to pay and then potentially claim back to one where payment is deferred, and only triggered if the buyer genuinely falls into the intended target category.
“If the surcharge proposal is designed to promote home ownership, we think that there should be better evidence as to why this requires a reversal of growth in the private rented sector.”
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