Replacing stamp duty with swingeing taxes on property isn’t going to attract many buyers, writes Brian Monteith
Last week, while the eyes of the British media were focused on the first election of a UK Independence Party MP, a more sobering political moment occurred in Holyrood – the announcement by finance secretary John Swinney of a new tax to replace stamp duty in Scotland.
This was important not so much for its own history of being the first tax struck by a Scottish Parliament since 1707, but for the fact that it said so much about the direction of travel that the SNP wants to take us all, and in so doing must create a debate about tax and spend policies in Scotland.
Let there be no doubt, the SNP – and any other collectivists, socialists and fellow travellers of the left that support the new tax – wish Scotland to become, and be known internationally, as a high tax economy.
Thanks to the Scotland Act 2012 the SNP had already announced that it would replace stamp duty with a new Land and Buildings Transaction Tax, so last week’s announcement revealed the detail. It is not surprising the SNP’s budget was arranged for after the referendum as many who voted Yes might be less than happy about the cost of purchasing a new home in Swinney’s grave new world.
Currently, stamp duty is set at zero per cent for properties that sell for under £125,000; 1 per cent between £125,001-£250,000; 3 per cent between £250,001-£500,000; 4 per cent between £500,001-£1m; 5 per cent between £1m-£2m and 7 per cent above £2m. It is a particularly vicious tax because it is not graduated – if a property sells at £300,000 then the whole amount is taxed at 3 per cent, there is no tax-free allowance or sliding scale going through the lower bands.
There was an understandable rush by commentators to welcome the raising of the starting threshold from £125,000 to £135,000 and that after all the computations anyone buying a house for under £310,000 will pay less. This may be premature, for if this supposed greater affordability encourages more purchasers chasing the same number of houses the savings against the old stamp duty could well be lost to rising prices. Let us not forget that taxes have a habit of depressing prices and so for lower income households there may end up being no net gain.
It would not have been beyond the intelligence of John Swinney to construct a new tax that introduced a graduated system (as he has done) but which also sought to have a neutral effect in that it aimed to raise the same amount of revenue. But that is not what has happened, instead Swinney has, by introducing a leap in the rates on properties being purchased for £250,000 and over created a punitive tax that will punish moderate earners.
Take the marginal tax rate between £135,001 and £250,000 at 2 per cent after which it then incurs an amazing fivefold leap to a pernicious 10 per cent. It then climbs again to 12 per cent for properties over £1 million. This means that properties over £310,000 will be liable to higher taxes.
A property on the market for £500,000 that is liable for stamp duty of £15,000 would, under Swinney’s new “fairer” system, tender a rise of an astonishing 82 per cent to £27,300. It is the buyers that have to find the money, on purchase, which has to come out of their pockets or be deducted from the free funds they might have realised from a previous property sale, for it is not money that lenders will provide debt for.
We can therefore expect a number of outcomes: firstly a rush before April to buy more expensive properties with the stamp duty accruing to the UK Treasury, secondly a cooling of those properties being sold and a depression in prices. Both effects will have a negative impact on the Scottish Government’s projected incomes, unless they have already allowed for such deleterious impacts.
The aspirational classes – the very people that can generate economic growth that creates jobs and alleviates poverty are the people who will be punished. These are also people who may also find themselves in the top rate of income tax, paying the highest council tax band and inelegible to other benefits as welfare is reformed to exclude them. They may also be paying for their children’s education twice by using independent schools (that save the taxpayer money) and funding savings or pension schemes that also lighten their burden on the state.
The easiest way to a fairer society is to create jobs and spread improving incomes – Swinney’s new tax is nothing other than an envy tax against those that have larger houses and sends all the wrong signals to people that might want to build their future in Scotland or relocate here. Never mind the call of London, now the cities of Leeds and Manchester, with attractive earnings, good public amenities, excellent cultural facilities, and relatively low property prices – thus lower taxes – must look more attractive.
What a difference if John Swinney had instead gone down the route of saying Scotland is open for business, that it wants the best minds and hardest workers to relocate here and to make that easier he would over time abolish stamp duty altogether or at least replace it with a tax giving Scotland the competitive edge over the rest of the UK. If it is right for corporation tax to be lower in Scotland then why not for taxes on property transactions?
There is one undoubted beneficiary of Swinney’s proposals, but it is not the one he intended, it is the Scottish Conservative Party – but only if it sees this tax as an opportunity to be different, a chance to swim against the treacly tide of collectivism, row against the strong currents of socialism and avoid the disastrous whirlpool of envy politics.
It is not enough to offer lower, less prohibitive rates, what is required is a philosophical argument about why progressive taxes are regressive in their outcome and that we need tax reform that makes Scotland’s taxes simpler, understandable and affordable. Then, once such reform is enacted, watch the revenues climb on the back of a growing private sector economy.