There's no such thing as a free stamp duty holiday - David Alexander

Originally scheduled to close at the end of this month, the stamp duty holiday in England and Wales is set to continue before finally tapering to a close on 30 September.

David Alexander, managing director of DJ Alexander, looks at the future for the high street.

By that time around half a million home-buyers south of the Border will have benefited from the initiative to the tune of £3.4 billion, according to research by the comparison website, GetAgent.

This is in contrast to Scotland where the government ended its somewhat reduced LBTT holiday (the limit here was £250,000 compared to £500,000 in England) on 31 March, albeit providing one crumb of comfort in permanently increasing the threshold for zero LBTT from £125,000 to £145,000.

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Holyrood’s stance seemed to me to be self-defeating because the “holiday” was as much about boosting confidence as saving homebuyers money. History has shown, again and again, that in the UK at least, a confident housing market and economy go hand in hand and the fact that the market not only survived, but flourished, in the face of covid-19 undoubtedly has taken off some of the wider economic pressure brought about by this pandemic.

As for the financial considerations, it will be interesting to learn the actual net cost to the Westminster government of the stamp duty concession. The anticipated drop in Treasury takings will no doubt have been alleviated to some extent by the amount of tax taken from higher-value house sales that would not have happened had the current “boom” (partially inspired by the “holiday”) not taken place.

In 40 years of paying business and personal taxes I have come to learn that governments – of all persuasions – have a knack of making up for lost tax of one sort with more tax of another, either directly or by stealthier methods.

For example, senior politicians continue to insist that homeowners do not, nor will they ever, pay tax on the sales of their first and only homes. Strictly that is true but the deeper one digs it becomes more of a grey area.

Currently relatively few people, even those who own their own homes outright, consider themselves wealthy enough for their estates ever to be subject to inheritance tax (IHT) after death. Therefore it comes as a shock when some of them learn this might be the case.

And it is mainly, though not wholly, down to residential property values. Currently IHT is payable (at 40 per cent) on anything above £325,000 on a deceased’s assets, unless the assets are bequeathed to a spouse or civil partner. This threshold has remained at this level since 2009 and the Chancellor has stated that it will not rise again until at least 2025. Therefore over a quarter of a century thousands of home-owners (even of relatively-modest properties if located in hot spots) will have become potential IHT “targets” simply because of rising house prices.

Some say that is only fair given that such asset growth required little or no skill or effort but that is only true to a certain extent. Imagine a semi-detached house in a suburban location which the owners have lived in since they bought it, new, back in 1981. During those 30 years the owners will have probably upgraded the kitchen and the bathroom twice, replaced the original fitted wardrobes in the bedrooms and carried out regular redecoration; not just for their own satisfaction but because otherwise the property would simply not be saleable at the “market” price. Add to this responsibility for maintenance and insuring the building year after year. Yes, house-price inflation (always way ahead of the consumer average) will have been responsible for much of the added value but by no means all of it. Yet the substantial cost of modernisation, maintenance and repair is not taken into account when assessing the value of a main home as an asset under IHT regulations. It’s as if the property just grew in value by magic!

Therefore, while an unapologetic supporter of the stamp duty holiday for the reasons stated earlier, I’ve a feeling that somehow, sometime down the line those homebuyers who benefited will end up paying it back.

David Alexander is managing director of DJ Alexander

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