Therefore when the United Kingdom’s Chancellor of the Exchequer decides to pay millions of workers to stay at home for six months, exempts property transactions from the standard government levy, and even pays families to eat out in restaurants, not just taxes but higher taxes, are inevitable.
Rishi Sunak’s policies so far have not only been about pumping money into the economy to save companies (and therefore jobs in the longer term); it is also about “steadying the ship” from the point of view of reassuring the nation psychologically. But somewhere down the line a day of reckoning is bound to come; pinpointing to what extent, and who will be worst affected, is the difficult bit. So let me focus on the part that involves me professionally.
The current situation is that Land and Buildings Transaction tax on sales below £250,000 will not apply in Scotland until 31 March. In England the threshold on Stamp Duty (as we in Scotland used to call it but of course the SNP administration just had to come up with a different name) is £500,000, which while acknowledging higher average prices south of the Border seems to me to be – pro rata – a more generous concession than the one in Scotland.
But let’s not be churlish; what’s not to like about paying less tax in Scotland if you are thinking of moving house during that period – or, for that matter, are a property agent benefiting from the extra business resulting from additional sales?
However there is another famous expression which goes back far beyond Benjamin Franklin (in fact to before the time of Christ): “Beware Greeks bearing gifts”.
My fear is that the LBTT/Stamp Duty “holiday” may turn out to be a double-edged sword – i.e. the Chancellor’s generosity might just be the precursor to a much bigger take-back within the property sector. In other words, a tax trap.
My concern is based on the Westminster government’s current review of the Capital Gains Tax (CGT) treatment of property. Given that this review is so broad-base it could impact upon individual house buyers, landlords, second homeowners and investors, therefore people buying property now could later regret it if the government substantially increased the tax rate.
No-one would deny that raising the two thresholds has, on both sides of the Border, had the desired effect of accelerating the volume of property purchases at a time when the market was expected to falter. The Chancellor should be credited with ensuring that the market has come out of lockdown fully functioning and, dare I say, almost thriving. But with the lost income having to be clawed back somehow, CGT does seem ripe for “reform” (a common euphemism used by politicians to justify a tax increase).
I cannot help viewing the LBTT/Stamp Duty giveaway as – at least partly - a means of drawing more people into the market and then taking more back through CGT when the property is sold, which would be an extremely clever means of increasing the tax take for the Treasury for decades to come.
Realistically, I cannot see CGT being applied to the sale of “only or main homes”, which would surely be an act of political suicide by the Conservatives, who present themselves as the champions of home-ownership. Can you imagine households in London’s leafy outer suburbs voting for a party that taxes the profit on their £1 million “semis” especially as, after they pass on, the value of these properties makes their estates potentially subject to inheritance tax at 40 per cent?
The real long-term targets will probably be landlords, investors and second homeowners. These are weak in numbers and political influence and, let’s be honest, they don’t elicit much sympathy among the general public either (mistakenly in my view).
Despite the near certainty of the property market becoming subject to higher taxes let’s hope the Chancellor resists the temptation to treat the sector as a cash cow, especially as it’s an essential component of the UK economy.
In other words, to use a third popular expression: “Don’t kill the goose that lays the golden egg”.
- David Alexander is managing director of DJ Alexander
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