At the end of last year, the chancellor’s Autumn Statement detailed the current state of the UK economy and proposed changes to taxation and government spending. For construction companies and Integrity Software clients, the biggest announcement was undoubtedly the overhaul of Stamp Duty. In case you managed to miss the details of the changes, here’s what they amount to. The ‘slab’ system has been confined to history and will be replaced by an income tax-style taxation system, where homebuyers will be charged at a higher rate only for the portion of the cost that is over each threshold. No Stamp Duty will be paid on the first £125,000, 2% will be charged up to £250,000, 5% up to £925,000, 10% up to £1.5 million and 12% on anything above that threshold. 98% of homebuyers will see lower Stamp Duty bills as a result of this change, which came into effect almost immediately after the statement on December 3rd last year. The significance of this change is huge for homebuyers, but what about construction companies? Lets examine the potential short-term and long-term changes for the construction industry.
As is to be expected, it is homebuyers who will see the most immediate benefits from the change. The large lump sum required to pay off Stamp Duty bills was often a significant barrier to property purchases, particularly for first-time buyers. The changes will certainly increase the number of transactions in the short-term – RICS estimate a 2-5% rise. Price distortions in the market around the old Stamp Duty thresholds will be eliminated. This will give housebuilders one less problem to contend with, and perhaps increase the asking prices of properties that had previously been held back by the Stamp Duty thresholds.
With the general election looming, the changes to Stamp Duty may well prompt potential homebuyers to forge ahead with their plans despite the usual uncertainty at this point in the election cycle. Of course this will provide a welcome boost in housing figures for the government, but will also represent a boost for construction companies.
After the market eliminates the old distortions, consumers and construction companies will find a new normal. House price inflation will occur, but it is unclear as to the extent of any potential increases. However, it is expected that supply of housing will increase in response to the rise in transactions and reduced market distortions. Construction companies should expect increased opportunities (and revenue) in this key section of the market.
However, the long-term effects of the Stamp Duty change may well be overshadowed by any changes made by the next government over the coming years. The tax is still far from perfect, and many economists deem it wholly unnecessary. It remains to be seen if we’ll see more significant reforms to Stamp Duty in the future. In Scotland, Stamp Duty is about to be replaced by Land and Buildings Transactions tax – take a look at the FAQs to learn more about this approach.
Builders’ accounting software can steer you through spikes in demand and help you take into account changing industry conditions during the day-to-day running of your business. Create forecasts and financial reports with ease, identify costly jobs and speed up tedious processes. Take a look at our seven-step guide to construction software to find out more.