New clause 10—Review of higher rate of tax for additional dwellings—
“(1) The Chancellor of the Exchequer shall commission a review on the revenue effects of the amendments to FA 2003 made in section 43.
(2) A report of the review under subsection (1) must be laid before the House of Commons before 29 October 2019.”
This new clause requires a review of the revenue effects of the provisions in clause 43, and for that review to report within 1 year of that clause becoming effective.
New clause 11—Annual statement on effects of provisions of section 43—
“(1) The Chancellor of the Exchequer must make an annual statement to the House of Commons detailing how the provisions in section 43 have affected instances in which land transaction returns are amended to take account of subsequent disposal of the main residence.
(2) The statement must specify—
(a) the number of such instances, and
(b) such information as the Commissioners hold as to the characteristics (including income) of those concerned.
(3) The first such statement under subsection (1) must be made before 29 October 2019, and each subsequent statement must be within twelve months of the previous statement.”
This new clause requires an annual statement on how the provisions in section 43 have impacted the number of back claims of HRAD.
New clause 12—Review of higher rate of tax for additional dwellings—
“(1) The Chancellor of the Exchequer shall commission a review on how the provisions of section 43 have affected residential property prices.
(2) A report of the review under subsection (1) must be laid before the House of Commons before 29 October 2019.”
This new clause requires a review on how the provisions in clause 43 have affected house prices, and for that review to report within 1 year of that clause becoming effective.
Clause 43 makes changes to ensure that the stamp duty land tax higher rates for additional dwellings rules are easier to understand and more transparent. In April 2016, the Government introduced additional rates of SDLT for those purchasing additional residential property such as second homes and buy-to-let properties. The rates are 3 percentage points above the rates of SDLT ordinarily payable and are part of the Government’s commitment to support first-time buyers. The changes reflect feedback from the public and industry specialists about the key areas where the rules on the higher rates have proved challenging or do not work as well as they could.
In general, purchasers buying their first property, replacing a main residence or buying an additional property worth less than £40,000 will not be subject to the higher rates. Someone buying their new home before they sell their old home, however, must pay the higher rates up front but can claim a refund when they sell their old home within three years of buying their new home. When the old home is sold more than 12 months after the purchase of the new property, individuals are required to reclaim the higher rates within three months of the sale of the old property. The first change introduced by the clause will increase that period to 12 months, giving taxpayers a longer period within which to reclaim the higher rates. The change will apply to all disposals of a previous main residence from
The second change addresses the term “major interest” in relation to the higher rates of stamp duty land tax, where some stakeholders have suggested that existing legislation is unclear. The higher rates of stamp duty land tax are intended to apply when someone buys or already owns a major interest in a dwelling. “Major interest” is used to ensure that the higher rates for additional dwellings apply only to meaningful purchases of residential property and not to minor interests—for example, a right of way or a right to light. This change confirms, in line with the Government’s existing treatment, that an undivided share in land constitutes a major interest for the purposes of the higher rates. That also takes effect from
New clause 10 seeks to commission a review on the revenue effects of the amendments to the Finance Act 2003 made by clause 43. It would require the Chancellor of the Exchequer to make an annual statement to the House on those who have made a reclaim for the higher rates. The new clause is not necessary; as is stated in the tax information and impact note published at the 2018 Budget, these changes are expected to have a negligible impact on the Exchequer, so a review on the revenue effects is not required. Her Majesty’s Revenue and Customs already publishes annual and quarterly statistics setting out transactions subject to the higher rates of SDLT on additional properties and the transactions, volumes and values reclaimed.
New clause 12 seeks to require a review of the effect of clause 43 on residential property prices. Clause 43 simply increases the time from disposal for people to make a claim to 12 months and confirms existing practice on the definition of “major interest”. Neither change is expected to have an impact on house prices and such a report would not be of benefit to Parliament. I therefore urge the Committee to reject the new clauses.
The changes in the clause will help to ensure that the rules on the higher rates of stamp duty land tax are easier to understand and more transparent. I commend the clause to the Committee.
I am glad I caught the hon. Member just as he was coming to his peroration. I have a constituent who had a home in Malaysia, where he was working. He moved back to Poole to retire and bought a flat. He was charged the higher rate of stamp duty because the flat was classified as a second home because he still owned a home in Malaysia. When I wrote to the Treasury, it said that that was because having a second home in Malaysia had an impact on the British housing market, which I did not think was a very convincing answer.
Does this rule apply worldwide if one owns a home outside the UK? In effect, if someone has a holiday home outside the UK, they get charged higher stamp duty when they buy a house in the UK. If they sell their house in Malaysia, Spain or France within three years, do they then get a reduced rate of stamp duty land tax? As an aside, it seems bonkers that we are charging people a higher rate on the basis that they have a home halfway round the world, but that is the world we seem to live in.
The central point is that if someone is UK tax resident, their income is taxed, albeit that some of it may occur in other jurisdictions and perhaps be subject to double taxation arrangements between that jurisdiction and our jurisdiction. None the less, my hon. Friend’s assumption is correct that if someone has a property overseas, it is effectively counted as if it were a domestic property in the context of this clause. The easements that the clause introduces in terms of greater time to put in an application for a rebate at the higher rate apply equally whether one of the properties is overseas or here in the United Kingdom.
As the Minister explained, the clause would change the parameters for claiming a refund on the additional dwelling SDLT by quadrupling the time that claimants have to reclaim the funds, potentially for up to a whole year after they have sold their old home, if that is later than a year after the filing date for the SDLT date for the new home—so the second parameter stays the same, if that makes sense. It is quite a complex change to understand.
The “major interest” provision is also tightened to make it clearer that a major interest in a dwelling includes an undivided share in a dwelling for the purpose of the higher rates for additional dwellings. I understand that the Government have suggested that the extended time period is necessary to enable those who might find it difficult to claim to do so—for example, those who are elderly or vulnerable due to serious illness.
In principle, the changes do not water down the Government’s initial stated commitment to charge additional SDLT for those owning additional properties, provided they are held on to for more than three years and provided that they fall outside the multiple dwellings category, which I will come back to in a moment. None the less, given that the changes appear to be focused on the context for the provision of additional dwellings, as against continuously occupied single dwellings, we feel it is necessary to subject their effectiveness to review, in order to ensure that they do not water down the initial measure in any way. That is what new clauses 10, 11 and 12 ask for.
New clause 11 asks for a review of the impact of these measures on the number of back claims of higher rates for additional dwellings, which I will call HRAD. Relatedly, new clause 10 asks for a review of the revenue effects of this new approach to exemption from HRAD. The reviews are surely desirable in a context where as many as nine out of every 10 additional property owners are in the top half of the wealth distribution, as was discovered by the Resolution Foundation, and where the proportion of adults owning multiple properties has risen substantially in recent years.
In contrast, as I am sure the Committee will be aware, home ownership has fallen precipitously among young people, with the chances of a young adult on a middle income being a homeowner having fallen by more than a half over the last 20 years, according to the Institute for Fiscal Studies. The number of people under the age of 45 who own their own home has fallen by 1 million since 2010. Of course, the number of new homes for social rent has fallen by 80% since 2010. We really need to understand the effectiveness or otherwise of the existing additional dwelling charge and whether or not these measures would reduce it.
It is also important to review these measures to consider their impact in relation to other tax-focused interventions that the Government are or are not making to enable sufficient access to continuously occupied singular dwellings, especially in hotspots for holiday and other additional homes. In this connection, it would be helpful if the Minister explained how this measure squares with the continuation, as I understand it, of multiple dwellings relief, which the Conservatives introduced in 2016, and which has received some press comments due to its use by certain individuals whom I am sure the Committee will be aware of. I will not add to their embarrassment here. The multiple dwellings relief enables not just a removal of the additional dwellings charge, but an actual reduction in the stamp duty charge, where a transaction or a number of linked transactions include freehold or leasehold interests in more than one dwelling.
The multiple dwellings relief is rather complicated to explain, but essentially it enables multiple simultaneous purchases to be counted separately for the purposes of stamp duty, albeit with a 1% floor. It treats them as if they were individual purchases, which means that the overall purchaser is tax-benefited, because if they were paying for all those properties in one block, they would trigger higher rates of stamp duty than just the individual rates.
For example, if five houses are bought for £1 million overall, that gives us £200,000 per house. The amount of SDLT payable on £200,000 is £1,500, which, multiplied by five, is £7,500. That is what would have been paid under the scheme, although there is a 1% floor, so overall the amount of tax would be £10,000. If tax had been paid on the £1 million overall, it would have been much more substantial, because it would be shifted into a higher rate of stamp duty. It is peculiar that we seem to have—unless I have missed some announcement from the Government—a continuation of that tax relief for multiple homes, yet an additional charge for just having one additional home. I have to say, I found the discussion raised by the hon. Member for Poole very interesting. I wonder how many people who are in the situation that he described are aware of the situation.
I am very grateful for that intervention. Furthermore, presumably it would be relatively difficult for the Exchequer to assure itself that that additional purchase had happened. This seems like quite a bureaucratic system, but I am sure the Minister can explain to us exactly how it works and how it is ensured that it is processed properly.
It would also be helpful to consider the measures in relation to the actions advocated by Labour, including enabling local authorities to treble council tax on empty properties after they have been empty for a year. Although the Government have shifted a little in this area recently, councils unfortunately still have to wait 10 years—an incredibly long time—before they can levy that level of premium.
We also need to consider the impact of these measures on house prices, which, as the Minister intimated, is demanded by new clause 12. There is a desperate need for action to level the playing field for those seeking housing for their families to live in continuously, as against those seeking a holiday home. Here again, the Opposition seek to place a surcharge on second homes that are used as holiday homes, based on council tax banding, which could raise £560 million a year to help tackle homelessness, as well as helping to level the playing field between those who can afford additional homes and those trying to take their first step on to the housing ladder. We surely need to understand the impact of the clause in relation to other potential measures.
Finally, while I have the chance, I inform the Minister that when one uses a particularly well-known search engine to try to find the very exciting HMRC stamp tax manual, it unfortunately finds the versions from 2010 initially, rather than more up-to-date versions. That surely needs to be ironed out.
I am sure that my hon. Friend will be tempted to speak by the time I have finished my remarks.
The hon. Member for Oxford East raised several points. She sought an assurance that we are not watering down the measure. I can certainly give that assurance. For example, the three-year window will be the same for people to reclaim the higher rate where a property is not sold before a new property is purchased, albeit that we are giving people more time to apply for that rebate. The essence of the measure remains very much the same.
The hon. Lady pointed out that home ownership is falling, particularly among young people. The Government are heavily engaged on that and have brought in various measures, as she will know, not least in the stamp duty area, with the stamp duty relief for first-time buyers. None the less, the statistic that she quoted of there being 1 million fewer homeowners under 45 than in 2010 is certainly something that we seek to address. I reassure her that, since the higher rates have been introduced, more than 650,000 people have bought their first home, and first-time buyers make up an increased share of the mortgaged housing market. That is what the underlying measure that we are debating is really all about: supporting first-time buyers and first-time home ownership.
The hon. Lady also raised multiple dwellings relief and gave a clear exposition of how it works by way of her example of the £1 million and the five properties. The way she described it was entirely accurate. In other words, there is a disaggregation, and then the appropriate level of stamp duty is applied to each one of those properties at, in her example, the £200,000 level. However, it is also the case each one of those properties in her example would attract the additional stamp duty charge in a situation in which more than one property is, of necessity, owned by the same purchaser.
The hon. Lady’s final point was about the potential impact of these measures on house prices. I go back to my earlier remarks that this a change in the timing by which individuals are required to make reclaims at the higher rate; it is not a change to the window of opportunity for doing so. As I set out, that in itself is not expected to change house prices.