The government have updated their official statistics on tax gaps – the difference between the expected income for the exchequer and actual receipts – which showed that uncertainty is inherent in all estimates. The gap for ‘other taxes’ included Stamp Duty Land Tax, which was estimated at 2% or £175 million and Stamp Duty Reserve Tax, that was estimated at 1% or £40 million.
The SDLT gap is estimated by using a combination of management information and assumptions. The uncertainty rating for the gap estimate was deemed to be ‘high’, as well as the SDRT gap being ‘very high’ from the government. This means that the tax base may not be fully captured or is misrepresented, the model is heavily assumption-based, and some data gaps exist. Experts have pointed out that the gap is widely miscalculated for both taxes with the areas of uncertainty including the scope of coverage for the higher rate of SDLT and the reliefs improperly claimed. Industry commentators have also identified the fact that the numbers which the government are using don’t include the overpayments which they subsequently refunded.
As a result of soaring UK house prices, more than 4 million homes have been pushed into a higher stamp duty bracket compared to March 2020. Of those pushed into a higher bracket, 28% have moved above the initial £125,000 stamp duty threshold according to data from Zoopla. Stamp duty is an important factor to consider but can often be overlooked when buying property, with research from Cornerstone Tax showing that 61% of homeowners said that they have never considered whether there was a mistake in the stamp duty they paid. However, the study also showed that 13% of homeowners said that they feel they were forced to pay too much stamp duty in error, due to their solicitor.
David Hannah, Group Chairman at Cornerstone Tax discusses the stamp duty tax gap:
“I think it is a very conservative estimate on the stamp duty tax gap from the government – the figures which they have gained are based on an overinflated base for tax take. This means that their numbers don’t include the overpayments that they subsequently refunded.
“The overpayment issue within stamp duty was a significant factor that should be considered when calculating the tax gap and I think the fact that the government has deemed their estimates for the two stamp duty tax gaps as ‘high’ and ‘very high’ speaks volumes.
“In terms of what the future of stamp duty holds, they’re proposing to change the basis of calculating multiple dwellings relief and for most of us that’s afforded as a £10,000 saving minimum if we’ve bought a house with an annex. They’re now proposing that the ‘granny annex advantage’ should be eliminated. They are suggesting that any house with an annex (where the annex is worth less than a third of the main house) won’t be eligible for multiple dwellings relief. This could cost the average annexed house owner from £10,000 to £87,000. The consultation document talks about supporting keeping families together but it’s clear that the revenue don’t like the tax advantage that these properties have.
“For most of us this will probably mean that over the course of the rest of this year, possibly even early 2023, we’re going to see the law changed, but it can only be changed going forward. Meaning many of the advantages which they talk about in this document are going to be available on past historic purchases if you can conduct a review of your transaction and will be available until the law changes.”
