Angela Watkinson

Conservative Party | Upminster

Stamp Duty Land Tax

Westminster Hall Debate

Angela Watkinson (Upminster) (Con): I am grateful for the opportunity to raise the matter of stamp duty land tax. It is an important issue because, in the short time since implementation, it has had a significant impact on buyers of residential and commercial properties and on conveyancing solicitors.

In April 2002, the Government decided that the existing stamp duty regime for United Kingdom land and properties, which had been in place for some 300 years, should be modernised. If ever a word were open to interpretation, "modernisation" is it. If it were synonymous with improvement, it might inspire some confidence, but unfortunately it is not.

One of the main objectives of the change was to introduce electronic conveyancing, which would make the house-buying process simpler, quicker and more efficient, surely a desirable aim in view of the emotional and financial stress attached to the process of buying and selling property.

Stamp duty land tax replaced stamp duty on 1 December 2003, replacing the old stamp duty on documents with a tax on property transactions. It was also extended to include business leases, and the Government expect to raise an additional £170 million from lease duty in its first year, rising to £450 million every year thereafter. It is, quite simply, a stealth tax on business leases.

Longer business leases of 15 to 35 years will be hardest hit, because the new tax is based on the full lease term. Shops, pubs, bars, clubs, restaurants and hotels all take out such leases to recoup their fitting-out and setting-up costs. Many cannot switch to shorter leases and face tax hikes of four and 10 times the present level. Marks & Spencer faces an eightfold tax rise and B&Q a rise of £250,000 for each new store. A typical pub with a rent of £30,000 and a lease of 20 years will see the old stamp duty charge of £600 become a new tax liability of £6,000, a draconian tenfold increase.

The Government plan a 24 per cent. increase in stamp duty land tax revenues over this year, a £1.8 billion increase from £7.5 billion to £9.3 billion. Given that the predicted increase in the property market and securities is only 10 per cent., many wonder where the extra money will come from.

The new procedure is far from being simpler. The old one-page form has been replaced by a six-page land transaction return—SDLT1—plus eight further pages of forms and 43 pages of guidance notes. Is this an example of Government modernisation? Far from being suitable for electronic conveyancing, as promised, the new forms must be completed by hand in black ink, handwriting must be neat, and a capital letter must appear in each box. As one solicitor put it, will we be expected to return to quill pens next? The change has caused unnecessary expense and inconvenience to many larger firms that had installed software in preparation, but had to revert to writing the forms by hand. The forms also require information beyond that needed to fulfil the transaction—for example, the national insurance number of the purchaser and the gazetteer number of the property. Why on earth should buyers suffer the additional inconvenience of providing this information?
As a result of these longer forms, the Law Society has advised its member firms to charge a minimum of £40 extra on residential transactions and £70 extra on commercial transactions. In practice, the costs are even greater. With about 1.1 million transactions in the residential market every year, that represents £44 million in additional costs from government bureaucracy to the home buying public every year.

The Government were warned during the passage of the Finance Bill that the implementation of this new tax would need more time; for example, in the House of Lords Economic Affairs Committee report on 10 June, and also in a letter written in June by the then shadow Chancellor to the Chief Secretary to the Treasury. Conservatives even offered to support the Government if they listened to outside advice and delayed implementation so that the detailed rules and regulations could be agreed, documentation made ready, training for solicitors organised and computer systems tested.

Mr. Mark Simmonds (Boston and Skegness) (Con): I am grateful to my hon. Friend for giving way; she is making a powerful and articulate case about the problems of implementing stamp duty land tax. Is she aware that the Chief Secretary to the Treasury, in a response and in correspondence, admitted that it would take at least two years for the implementation of stamp duty land tax to work its way through the system?

Angela Watkinson: I will be referring to that point shortly.

The Government rejected all of our proposals because, according to a letter from the Chief Secretary to the then shadow Chancellor dated 30 June, they

"would lead to the loss of yield of about £250 million".

In other words, the reformed tax was no longer to do with simplifying the system, or enabling e-conveyancing, but was driven by a desperate need to reduce the £37 billion black hole in borrowing. Even the Chief Secretary, in that letter, admitted that the tax was unfinished, and would need a couple of years for refining. How can it be right to introduce a major new tax when the details remain unclear? How are taxpayers meant to plan when the rules could be altered immediately after introduction?

This muddling-through approach was confirmed by the slipshod way the detailed rules were presented to the House in the statutory instruments on how commercial leases were to be taxed, affecting seven out of 10 business leases and producing £170 million extra tax in the first year alone. First of all, the debate was scheduled just two weeks before implementation, leaving businesses little time to get organised. Secondly, the statutory instruments contained drafting errors and had to be reprinted and re-issued, leaving just five days for scrutiny. The Financial Secretary then failed to give answers to 12 key questions during the debate. With implementation looming, she promised to write with the answers straight away, but nothing was forthcoming, so on 28 November the shadow Paymaster General again wrote to the Financial Secretary asking for replies before the tax was due to come into force on 1 December. Nothing was heard, not a word. After further pressure from the shadow Paymaster General the Financial Secretary's office finally provided an answer to the 12 questions 10 days after the tax was enforced.The introduction was shambolic and left businesses and their advisers in the dark. Key definitions were overlooked. The delegated legislation passed by the House on 12 November appears to have failed to provide the definition of the start to the lease term. "Start" could mean many things, for example the date of the grant or the commencement date. Would the Minister confirm that this definition is indeed absent, and say what this means for the statutory authority of those documents already processed?

The introduction of the new tax was badly organised. Insufficient forms were printed for 1 December and some firms reported three-week delays in obtaining these forms, delaying house purchases and business deals. What went wrong? Why was the demand not accurately estimated and a sufficient supply of forms made available? Some forms were wrong, for example SDLT4 was completely wrong when dealing with more than one sub-lease. Some Inland Revenue officers have admitted that the document needs correcting and re-printing. The education and information provision for solicitors and conveyancers was late and inadequate. Many seminars took place just days before implementation, leaving insufficient time for professionals to prepare. Specimen documents shown were wrong—for example, the wrong codes were shown on SDLT1 forms—and many solicitors have complained that their questions were left unanswered. Why did this process start so late given that the main legislation was enacted in July 2003, giving a six-month lead-in time?

Delays with certificates of payment occurred. The promised five-day turnaround period is, in reality, nearly two weeks, and without a certificate the Land Registry can reject an application to register the buyer's title to the property. Are there sufficient staff dealing with this now, how many and what training have they received?The helpline collapsed in the first week, leaving many solicitors having to make repeated calls, only to be left without any information at all. What resources have gone into rectifying this, and how many calls to the helpline were expected during that first month? The electronic calculator for business leases, which the Chief Secretary told us would be ready in time, failed to be put online in time. May we be told why? The Law Society and its members are very unhappy about the implementation. The shadow Paymaster General has received dozens of letters citing complaints about these points. Has the Minister had an opportunity to meet with the Society, to discuss such complaints?

I have one particular example in front of me, from a solicitor in Leicestershire, who says that at the beginning of November his firm wrote to the Stationery Office of the Inland Revenue to obtain the appropriate SDLT1 forms, together with associated documentation. No documents arrived at their office in time for when the stamp duty legislation came into force. Indeed, in the intervening period, which was approximately three weeks, his firm made 12 telephone calls and wrote again requesting the appropriate documentation. The Inland Revenue helpline was unable to contact St. Austell to find out why there was a delay and said that St. Austell had taken the phones off the hook and were not responding to the e-mails that the supervisor at the helpline sent them. The solicitor's office made two calls to the Inland Revenue helpline and, during the course of one conversation, the telephone was slammed down, while they were in the course of indicating the nature of the problems that they were encountering. I would like to have been a fly on that wall.

Problems were encountered and compounded by the news that early in December the Inland Revenue computer, which was designed to scan the handwritten forms and input the data, had broken down. Several professional firms were told that the forms are being bundled up, driven to a different office and inputted manually. Would the Minister tell us if that is the case, what went wrong with the computer and what steps she is taking to rectify the problem?

This issue of stamp duty is also causing concern amongst mortgage lenders. The economics of house purchase are compelling. Mortgage payments tend, broadly, to be equivalent to rental payments. The possibility of making a capital gain when house prices rise means that owning your own home makes financial sense to most people. There are other distinct advantages to home ownership, such as the discretion to make improvements and to decorate according to personal taste, and location, which is not available to some people who are in rented accommodation. It is hardly surprising that most people aspire to home ownership by the time they settle down and start a family. Of course, this is also a time of life that incurs other great financial pressures, such as having children, paying off student debts and starting to make provision for pensions. Stamp duty comes as a significant extra hurdle for first-time buyers already faced with raising a sizeable deposit and rising house prices.

Four years ago, just 40 per cent. of first-time buyers paid stamp duty, and of those who did nearly all paid at the lowest 1 per cent. levy. Now only 25 per cent. of first-time buyers purchase property below the £60,000 threshold. Strikingly, in London and the south-east the figure is only 2 per cent. of first-time buyers, and in my own constituency a first-time buyer would be hard pressed to find any property under £150,000—and that would be a flat over a shop.

The typical amount of stamp duty paid by first-time buyers is £1,040, equating to 5.6 per cent. of annual take-home pay. It would take a year to save this amount at £85 per month. This typical duty of £1,040 also represents 8.6 per cent. of the typical deposit raised by a first-time buyer. It would not be surprising to see a downward trend in deposits in the future, given the difficulty in funding stamp duty, and this would be a worrying development as borrowers would be reducing their equity buffer in the unlikely event that house prices fall in their area. In extreme circumstances some borrowers may be enticed to put down no deposit at all. The proportion of first-time buyers paying no deposit has increased from 1.5 per cent. to 3 per cent. in the last four years, and at a time when levels of personal debt in this country excluding mortgages are at record levels, this would be a very undesirable trend.

The number of first-time buyers is at its lowest point since the early 1980s, a clear indication that affordability is stretched to the limit. Wide-scale home ownership is one of the cornerstones of the British economy, and is one of the factors that make our economy different from the rest of Europe. For most people, buying a house is their major lifetime purchase, or at least an aspiration that offers independence and freedom from the feudal ties of a landlord. Stamp duty land tax has turned homeowners and mortgage borrowers into a milch cow for the Treasury, rivalling even the beleaguered motorist. I hope that the Government will see that it is not working and reconsider, and that they will consult all interested parties including businesses, mortgage lenders, conveyancing solicitors and estate agents.