By email to: sdltadditionalproperties@hmtreasury.gsi.gov.uk

1 February 2016

Dear Sir/Madam,

Higher rates of Stamp Duty Land Tax (SDLT) on purchases of additional residential properties

Introduction

The Northern Ireland Tax Committee of Chartered Accountants Ireland is pleased to have the opportunity to comment on the above consultation document published on 28 December 2015. Information about Chartered Accountants Ireland and the Northern Ireland Tax Committee are provided on the previous page.

We would be happy to discuss any aspect of our comments herein and to take part in any further consultations/initiatives in this area that there may be in the future.

We wish to briefly comment on the current consultation.

Buy to let sector

The buy to let sector has seen several recent changes in tax legislation which will negatively affect this sector in the future.

The Finance (No. 2) Act 2015 contains provisions which will restrict relief for finance costs on residential property to the basic rate of income tax. These are being phased in over a four year period commencing from 6 April 2017. In addition, the draft Finance Bill 2016 clauses contain proposals to remove the current ten per cent wear and tear allowance. This is to be replaced with a relief which will enable landlords to deduct the cost of replacing certain furnishings in the property. However the upfront cost of such items will not be deductible. The provision is planned to take effect from 6 April 2016.

These two measures taken together will adversely impact the buy to let sector in the United Kingdom. After the property slump, many buy to let investors are suffering from negative equity situations with their only hope being a property price recovery. Many of those investors have been able to survive simply because they have been able to offset all of the interest paid on the buy to let mortgage (often interest only) against the rental income received. That will change when the above provisions are introduced.

In April 2015, the Bank of England was given additional tools aimed at controlling the residential property market (powers relating to loan to value limits and and debt to income limits in respect of owner-occupied mortgages). Those powers could now be extended to limit borrowing by landlords who buy property to rent out. At present the Government is consulting on Financial Policy Committee powers in relation to the buy to let mortgage market.

The consultation proposals, coupled with the aforementioned, will further impact on this sector particularily when investors are considering property investment options. The additional stamp duty land tax cost for residential property investment will simply act as a deterrent to many. This will adversely impact the demand from such investors and thus in turn the supply of affordable residential property pushing property prices and rents higher again.

Disadvantaged areas

If these proposals are to proceed, we would suggest a disadvantaged areas relief, similar to that which ended on 6 April 2013, be implemented which would remove the additional three per cent charge in designated disadvantaged areas. This should assist with stimulating regeneration of the housing market in the poorest areas of the United Kingdom.

In particular, the whole of Northern Ireland should be classed as disadvantaged. Currently it is classified as such for the purposes of the business premises renovation allowances scheme. Supply of affordable housing in Northern Ireland remains a concern and the Northern Ireland economy continues to lag behind the rest of the United Kingdom.

Impact assessment

We note that the consultation document is lacking any sort of impact assessment. Whilst the reason for this is unclear, we feel it is important to point out that increasing the rate of stamp duty land tax on additional property purchases is likely to lead to lower stamp duty land tax yields overall in this area as potential investors go elsewhere and transaction numbers fall.

In their 2013 report, Best and Kleven provide evidence of the effect of property transaction taxes (stamp duty) on house prices, the timing of house purchases, and the volume of house purchases.

That report found that “the effect of transaction taxes on house prices is large (200–500% of the tax itself) and that adjustment to changes in transaction taxes is very fast.” The report also found “that the timing of house transactions responds sharply to anticipated tax increases”.

Conclusion

Whilst mindful of the consultation deadline, we feel that there are broader issues arising from this consultation and a wider review of the United Kingdom housing market as a whole, across all regions, is warranted.

Accordingly there may be implications which we are not best positioned to comment on because they are not solely tax issues. Any proposals to add an additional three per cent stamp duty land tax charge should only be made after examining issues affecting the market such as supply shortages, high rents, finance and rising property prices. This could be conducted as part of the Five Point Plan for housing announced in the 2015 Autumn Statement.

We find it surprising that such an important consultation has a consultation period of less than half the 12-week period set out in the Government’s 2012 Consultation principles: guidance document. This advocates that “For a new and contentious policy, 12 weeks or more may still be appropriate”.

Given the potential impact of this change, the decision to reduce the consultation period is disappointing.

Freedom of Information

We note the scope of the Freedom of Information Act with regards to this submission. We have no difficulty with this response being published or disclosed in accordance with the access to information regimes. This response will be published on our own website and will be available to all of our members and the general public.

Do not hesitate to contact Brian Keegan (brian.keegan@charteredaccountants.ie) or Leontia Doran (leontia.doran@charteredaccountants.ie) of this office should you require anything further.

Yours faithfully,

Paddy Harty

Chairman

Northern Ireland Tax Committee

Chartered Accountants Ireland

Source: Chartered Accountants Ireland. www.charteredaccountants.ie