Rishi Sunak’s stamp duty holiday has been credited with reviving the property market and blamed for stoking house price inflation, but what has been its effect on the public purse? Remarkably, far from reducing receipts it has actually modestly increased them. In the first quarter of 2021 the public coffers swallowed one per cent more income from stamp duty than they did in the first quarter of 2020, before the holiday was announced on 8 July last year.
How come? Because stamp duty hasn’t been suspended altogether; the upper bound of the nil rate band for people buying a main home has been increased from £125,000 to £500,000. But stamp duty is still payable on properties sold for more than that. Moreover, residential properties bought as second homes or as buy-to-let investments still attract stamp duty of three per cent on top of anything else payable. Meanwhile, the stamp duty holiday has boosted volumes of sales. Sales of residential properties were up 53 per cent in the first quarter of 2021 compared with the same period a year earlier. Result: more sales, less tax paid by individual buyers but more tax raised overall – as well as more people kept in employment thanks to a more active property market.
The stamp duty holiday is a case of the Laffer curve in action. As with any tax, there is an optimum rate for raising revenue. Set a tax rate lower than that and a government will raise less revenue, but set a tax rate above the optimal level and it will also result in lower tax receipts as it begins to dissuade people from indulging in economic activity.