The great stamp duty debate

Written on 17 July 2013 by Alistair Boscawen in Property News


Stamp duty is seen as an inherently unfair tax on aspiration. Aspiration to own your own home, to move up the rung of the housing ladder. Our very own Alistair Boscawen examines the arguments.

 

Stamp DutyNo one likes paying stamp duty. It's one of those taxes that's generally viewed as profoundly unfair across the social spectrum. From first time buyers trying to stump up one percent for property between £125,000 and £250,000, to reports about middle class families trapped on the housing ladder as stamp duty spirals to three percent after that up to half a million, it's not exactly a popular levy. After all, the government’s fundamentally taxing something that is one of life’s necessities, encouraging people to borrow heavily and then punishing them through an unfair tax system.

Thresholds haven't changed

Another thing that’s been criticised is the fact that while house prices have rocketed, the duty’s thresholds have stayed the same. Hence there’s a strong impression that governments have used property owners as cash cows. In fact, the Nationwide index figures claim that the £250,000 limit would in fact be £675,000, whilst the £500,000 threshold would be at £1.35 million!

As well as this, this is a tax on movement, which can have massive implications for the economy. People are not free to move easily to look for work and therefore it has a knock-on effect on productivity. However, this hasn’t stopped the government from increasing Stamp Duty at the top end of the market. Every other day we seem to hear about how house prices in exclusive parts of London are booming, due to foreign buyers snapping up the best of the West’s stucco mansions. As a result, the coalition felt it justifiable to boost their coffers by upping the tax to seven percent for those with property worth two million plus.

Problems

The problem is that some London residents purchased these houses in the 1970s for a much cheaper price and are not necessarily wealthy when it comes to disposable income. As our very own Alistair Boscawen points out, there have been side effects that haven’t been at all helpful for the property market:

“This has had two effects:  the first and most natural was to slow the market down on properties in excess of this amount as buyers who are already feeling that they are paying a full and fair price for a property, then have to give a further £140,000 or more to the Government for the privilege of buying that property.  The second is to see an increase in sales of property in the one to two million pound bracket in areas just outside prime central such as Fulham and Battersea as buyers trade location for better value.”

"Word on the estate agent street is that the revenue take in excess of £2,000,000 has been reduced by 43 percent since the chancellor introduced the new level," he adds.

Meanwhile the Royal Institute of Chartered Surveyors has proposed that instead of introducing the levy, a higher council tax band should be phased in. The RICS also suggested that those over the age of 65 that are downsizing from a larger property to a smaller home should be ‘exempt’ from stamp duty on their purchase, as they’ll be freeing up housing for younger generations who have large families. As pensioners are typically on lower incomes, they’re unlikely to be incentivised to sell up if they face a massive tax bill.

Unlikely to change soon

Sadly for now it seems like stamp duty remains very much on the agenda. After all, it’s a tidy little earner for the Treasury and of course it’s an easy way for politicians to look like they’re targeting affluent people. However the problem is that everyone’s affected by this tax. Across the board, it can cause a lot of issues with finances for those looking to upgrade to a larger home. Equally it seems futile for the government to bleat about the plight of first time buyers, whilst burdening them with an additional tax and artificially inflating the housing market through schemes such as Help To Buy. Perhaps politicians should consider scrapping this unwanted levy. After all, it’s sure to be a vote winner….

Image from www.freedigitalphotos.net

Alistair Boscawen

Alistair has 32 years’ experience as an estate agent, starting in the country house department of one of London’s main international agencies before moving to the Knightsbridge house department of the same agency and learning the difference in values between freehold, long lease and short lease houses in Knightsbridge, Belgravia, Chelsea and Mayfair.

All articles by Alistair Boscawen

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