Terraced Houses Portland England
A green SDLT adjustment would give homeowners an incentive to upgrade their homes, the UKGBC has argued

Is a stamp duty overhaul the key to net-zero?

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Karl Tomusk

The UK’s target to hit net-zero emissions by 2050 depends on the quality of our houses. Unless we succeed in their “near complete decarbonisation” the UK will not meet its emission reduction targets, the Committee on Climate Change warned last year. But there is a complication.

Although there are a raft policies and proposals to improve rented homes and new-builds, the 15.6 million owner-occupied homes in the UK have fewer incentives to invest in energy efficiency. The Green Homes Grant, for example, was abruptly ended in March – and even before that there was never a guarantee it would be a long-term solution.

To fill that incentive gap, the UK Green Building Council has in a recent report called on the government to introduce an ‘energy adjustment’ to stamp duty. Buyers would pay more or less depending on a home’s energy and carbon performance.

“Mandating improvements to owner-occupier homes through regulation is both politically challenging and potentially difficult to define, but will be necessary in the longer term to ensure certainty of outcomes,” the report says.

The proposal

UKGBC is proposing what it says is “a nudge, not punitive”: an SDLT adjustment of up to ±3% of the sale price based on the home’s energy performance. The adjustment is ‘finalised” two years after the purchase to give homeowners time to make improvements. If a home’s performance improves in that period, the buyer gets a rebate.

Under the proposals, the Treasury would set and annually update an average energy performance “neutral point” – reflecting the actual and anticipated efficiency of a typical home. Homes that underperform that standard will have their SDLT adjusted upward, and vice versa.

The UKGBC argues that, by regularly updating the neutral point to reflect rising standards, the Treasury can ensure the proposal would remain “revenue neutral”, with upward adjustments to SDLT continuing to balance out downward adjustments.

UKGBC SDLT Proposal

Examples of how the the SDLT adjustment would work. An energy adjustment rate of 50 corresponds with the ‘neutral point’ (click to expand)

How would the tax affect the property market?

In theory, the UKGBC says the change should be small enough to not prevent sales – thereby avoiding a shock to the market – but large enough to encourage and reward action. Money should flow from inefficient homes to efficient ones within SDLT bands, rather than from low value homes to higher value ones. Even so, the actual financial consequence is expected to be modest, and the driver for change will be more psychological than fiscal, the UKGBC says.

Still, owners of the most expensive properties with the least energy efficiency would lose out most financially. If the effect is that, over time, the highest value homes improve at a much higher rate than the average, the report suggests the government could introduce band-specific neutral points to ensure money does not simply flow into higher value homes.

Why propose a stamp duty adjustment?

The UKGBC gives several reasons:

  1. Decarbonising homes is a priority in meeting net zero targets. The UK’s housing stock is among the least efficient in Europe, as a parliamentary report in 2019 set out.
  2. Householders need an incentive to act. Creating a long-term incentive moves energy improvements up the agenda for homeowners and ensures government grants can be focused where they are needed most.
  3. The house-buying market needs to be able to place a tangible value on energy performance. In the way a buyer might price in fixing a broken wall or upgrading a kitchen before a purchase, they should be able to price in improving an EPC rating.
  4. Creating value at the point of sale could be the ideal time: most home improvements happen soon after a house purchase when the home is less cluttered and while other fitout choices are made. Estate agents would have a reason to up-sell energy efficiency measures, and vendors would have a reason to include energy retrofits before they sell if they know it will affect the home’s value and appeal.

Jenny Holland, public affairs and policy specialist at the UKGBC, says: “Properly designed, the incentive can be made revenue-neutral to the Treasury and would be very easy to administer.

“Decarbonising our housing stock is important not just for tackling climate change, but because it makes our homes cheaper to run and healthier to live in. A stamp duty incentive would build a thriving retrofit market, supporting green jobs, boosting household spending and bringing down fuel bills. And crucially, it would embed energy efficiency into the decision-making process of homebuyers and drive a value differential in the property market as a whole.

“The government should show international leadership and introduce a stamp duty incentive ahead of COP26.”

What’s next for the proposal?

The UKGBC had two meetings about the proposals with Kwasi Kwarteng, the secretary of state for the Department of Business, Energy and Industrial Strategy, when he was still a junior minister, which led to further discussions with officials earlier this year.

Holland says: “Upon publication… we sent our SD report to relevant officials, who have come back saying it is very useful. This is particularly relevant because the Energy White Paper committed to consult on regulatory measures to improve the energy performance of owner-occupied homes.

“This consultation is expected shortly, and on the basis of our discussions with both the secretary of state and his officials, we are hopeful that proposals for a stamp duty incentive will be included.”

Asked whether the government is considering these proposals, a BEIS spokesperson says: “The UK has a strong track record in improving the energy performance of its homes, with 40% now rated EPC band C – up from just 9% in 2008. We are committed to going further and faster, and we continue to consider a range of ways we can drive forward decarbonisation, investing £9 billion in improving the energy efficiency of our buildings.

“We have also recently announced up to £300 million extra funding through local authorities for green home upgrades, bringing total spending on energy efficiency measures to £1.3 billion in the upcoming financial year.

“As outlined in our Energy White Paper, we have already committed to consulting on regulatory options to improve the energy performance of owner-occupied homes.”

BEIS will “shortly” publish a Heat and Buildings Strategy, setting out plans for further decarbonisation in the UK’s housing stock.

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