Stamp Duty receipts fall – Laffer Curve?

by Readers Question

10:54 AM, 11th February 2019
About 5 months ago

Stamp Duty receipts fall – Laffer Curve?

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Stamp Duty receipts fall – Laffer Curve?

Stamp duty receipts in decline in tandem with BTL

SDLT income take down:

“Transactions have fallen by 2.6% in 2018 and now stand at just over 1 million. This compares with HM Land Registry data for 2018, which reports a 4% fall. On a more granular level, HRAD transactions, i.e. those which include the 3% additional duty, have been hardest hit, with a fall of 4.6%. Receipts have followed suit with transactions, which have fallen 8.5% overall. The receipts from the 3% additional duty (HRAD) have suffered the largest drop, falling 14.2%.”

Looks like Phil has an error in the formula of his spreadsheet as the Red Tories make an error that you would expect of a died in the wool socialist who doesn’t believe in the Laffer curve.

Arnie

Editors Notes

The Laffer Curve states that if tax rates are increased above a certain level, then tax revenues can fall because higher tax rates discourage people from working. Equally, the theory indicates that cutting taxes could lead to higher tax revenues.

Arthur Laffer presented the theory first to the US President Gerald Ford making and argument against tax increases. The Laffer Curve shows the ratios between tax revenue collected by the government and tax rates. The tax rates depicted on a Laffer Curve range from 0% to 100% with a optimum point of taxation inbetween declining curves of tax take that reduce to zero at 100% tax and 0% tax

The idea behind the Laffer Curve is that people will stop or be discouraged from working after a certain point because the tax rates will be too high.



Comments

Sean Graveney

11:06 AM, 11th February 2019
About 5 months ago

Mentioned this another thread, but wouldn’t branding this a failed measure due to reduced tax take be making some assumptions about why SDLT was increased.

Not all taxes are increased due to the desire to raise more tax. Surely many taxes are used as a deterrent too, so a reduced tax take due to a reduction in the activity being taxed would indicate a success.

Why was SDLT increased, and in particular the additional 3% levy? What other effects has it produced beyond lower tax take?

AA

23:17 PM, 11th February 2019
About 5 months ago

Reduction in transactions equals house builders putting the brakes on so as not to flood the market. There are only so many credible buyers in the market. 90% I would argue are flaky as in quasi sub prime or sub prime - gig economy, temp contracts, zero hours contracts, part-time contracts etc. Until these structural issues are resolved, and most likely they will remain unresolved, the supply is going to be further reduced. I am going to short house builder stock.

Dr Rosalind Beck

9:43 AM, 12th February 2019
About 5 months ago

Section 24 will be having a similar effect. Many people will give up either the salary or the rental business when faced with even 100 percent plus effective tax rates. I know a teacher who has quit teaching because of it and will now just be a landlord. This is another type of loss to the economy and society because of this absurd tax.

JJ

9:49 AM, 12th February 2019
About 5 months ago

Reply to the comment left by Sean Graveney at 11/02/2019 - 11:06
My understanding is that tax policy on buy-to-let changed to try to avoid another housing bubble: Before the last crash I recall the then prime minister Gordon Brown being quoted as saying that he knew the economy was driven by the housing market; despite that he still pursued the kind of tax-and-spend policies that Denis Healey pursued, with the same disastrous consquences. Funny how some politicians don't seem to learn from history and it's odd that Gordon Brown was old enough to remember it...

I think the idea of the recent changes is that the changes to mortgage interest relief, which only effect you if you are a higher rate tax payer, were there to avoid penalising the occasional accidental landlord who was not minted. It's a blunt instrument because ideally you would want a policy that favoured good landlords, and other policies that brought housing onto the market such as for example making it tax efficient to rent out more than one room - you can only rent out one under the rent-a-room scheme.

AA

10:11 AM, 12th February 2019
About 5 months ago

Reply to the comment left by Dr Rosalind Beck at 12/02/2019 - 09:43
I am burying my head on that one. I am in employment plus a landlord and I was reading an article elsewhere regarding those with salaries and rental income. Being risk averse you have to be pretty certain about your situation to want to leave your job. A by-effect can be you are sitting around with time on your hands and you start doing the minor maintenance, repairs decorating and find yourself in the NIC 2 trap.

John Parfett

11:16 AM, 12th February 2019
About 5 months ago

Reply to the comment left by AA at 12/02/2019 - 10:11
Is that when we become classed as self employed & have to pay Class 2 NICs? I have 2 years to pay in for full pension & was going to pay Class 3 (£761 per year) rather than Class 2.

Bruce Patterson

11:33 AM, 12th February 2019
About 5 months ago

Reply to the comment left by Sean Graveney at 11/02/2019 - 11:06
Sean - surely any increase in economic activity is good for the economy ?

Agree that bubbles are to be avoided but the high levels of Stamp Duty are stopping genuine home movers

In Scotland the additional dwelling supplement is now 4% which is a deterrent for those buying second homes

AA

14:47 PM, 12th February 2019
About 5 months ago

Reply to the comment left by John Parfett at 12/02/2019 - 11:16
It then can be classed as a business. Ramsay v HMRC sheds some light on this. As they were carrying out tasks beyond "normal" ( whatever that is) ,landlord activities - although this case was principally to do with incorporation. One of the key points was it was the quantity of tasks and not the quality. And it has to be your only job / work.

Badger

16:10 PM, 18th February 2019
About 5 months ago

Reply to the comment left by John Parfett at 12/02/2019 - 11:16
Before anybody volunteers to pay any form of top up in terms of NICs you might want to ask the government what your pension entitlement will be when you come to retire.

I did this as a part of trying to establish how much in the way of additional contributions I needed to make to compensate for having a number of years of missing NICs and in order to qualify for a full pension and I was rather surprised to find that I would be entitled to a full pension anyway. Needless to say, I have filed their written response away particularly carefully for the future.


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