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Chancellor George Osborne’s attempt to outmanoeuvre that Labour Party and its ill thought out mansion tax proposal by announcing immediate changes to stamp duty unfairly punishes many homeowners in London and the south-east.
Here at Best Gapp we’ve long called for major reform of stamp duty, and we welcome the changes announced by the Chancellor in the Autumn Statement last week that mean 98% of people will pay less tax when purchasing a property.
But while Osborne has scrapped the ‘slab’ nature of the tax and made it progressive like income tax, those who buy properties for in excess of £937,500 will feel the pain.
Many of those properties are in London and the south east, where poor house planning policy and low interest rates have sent the housing market spiralling upwards.
The new charges now mean that buyers don’t pay tax on the first £125,000 of the property value, and will continue to benefit if the property they purchase is worth up to £937,500. However, after this level, property purchasers face paying rates of 10% stamp duty on a portion of their purchases up to £1.5m, and 12% stamp duty on the portion of a purchase price above £1.5m.
This means prices of properties below the £937,500 threshold may well rise as the rate is less, while properties above this value could well go down in value.
This could cause problems for those looking to sell further up the ladder. As a result, they could well stay put and extend – as there’s hardly any incentive for older people to downsize (something the government’s always going on about and wants to encourage).
The problem with Osborne’s measures is that the aim is to outdo Labour on the mansion tax proposal for properties worth more than £2 million. We’ve already written about why we think this is a terrible idea, but if Labour or the Liberal Democrats were to win the general election in May they haven’t ruled out introducing a mansion tax on top of the latest stamp duty changes.
Among wealthier groups, the hardest hit will be those who may have bought in recent years at just below £2m to squeeze in below the previous 7% threshold. A home worth £1.9m would have incurred £95,000 in stamp duty before. Now it incurs £141,750 — a 49& increase.
While we understand that stamp duty has become an increasingly important revenue earner for the Treasury over the years (in the last year it’s pulled in £9.3bn or so in comparison with £6.9bn in the previous year), we think that to keep the labour market fluid and momentum in the property market it must be kept as low and as flat as possible.
While Osborne’s changes are welcome, punishing those at the top end of the market and those who wish to purchase expensive homes because they’ve worked hard and maybe want a bigger property for their families won’t solve the housing crisis. Only a proper housebuilding policy will do that – the elephant in the room is still being ignored.