UK: first time buyers thumped by stamp duty
The UK's stamp duty regime is perhaps the most hated of all, with frequent calls for its abolition as a pointless tax. But under Gordon Brown's reign as Chancellor, it went from Cinderella tax to serious money spinner. But the story has a kick in its tail.
According to figures produced in the past few days by Halifax, the UK's biggest mortgage lender, the tax has become a seriously regressive tax.
In July 1997, just three months after Britain elected a Labour government, the then Chancellor of the Exchequer, Gordon Brown, changed the stamp duty regime. Despite calls for the abolition of the tax, which is an ad valorum tax on the purchase price of property (and, hence, paid by the purchaser) the thresholds were changed.
In 1997, a property worth a quarter of a million pounds was, in most of the country, a relatively rare commodity and the new thresholds of GBP 125,000, 250,000 and 500,000 were set. And many first time buyers outside the property hotspots of London, Bristol and one or two others were able to have a choice of properties for under GBP125,000.
However, despite rapid house price inflation in the intervening ten years, those thresholds have remained static with the result that, according to the Halifax, first time buyers being increasingly liable to pay the tax.
Worse, in 2002, the payable tax rate was increased providing the Treasury with a bonus based on what amounts to windfall profits resulting from house price inflation.
Stamp Duty is payable on the price of the property - but there is no staged calculation. If a property is less than GBP125,000, no tax is payable. If it is more than GBP500,000, then the maximum rate is payable on the full price passing.
This, many estate agents have found, means that there is a black hole between GBP499,999 and as much as GBP510,000 or, in some districts even more. Simply, purchasers are not prepared to go to 500,000 or a little more and suffer a massively increased amount in extra taxes.
For purchasers, the taxes have to be found from liquid funds: lenders rarely (and in the current tightening credit market and risk of falling property prices almost never) agree to add the tax to the loan amount.
First time buyers, therefore, have to fund the gap between amount borrowed and the total costs of purchase including solicitors' fees, valuation fees and stamp duty plus land registry fees. Many find the additional stamp duty a huge burden.
So how much is the tax?
|
Purchase price (GBP) |
Tax rate payable on whole price passing |
|
up to 125,000 |
0 % |
|
from 125,000 to250,000 |
1% |
|
from 250,000 to 500,000 |
3 % (increased from 1.5% |
|
above 500,000 |
4% (increased from 2%) |
The Halifax says that in 2002, the average first time buyer paid GBP960 in stamp duty. Now, it says, he pays GBP1751.
And due to the high prices for even low-end property in the UK, there were very few first time buyers in the south east of England who did not pay stamp duty - and even in the cheapest areas, 42% were still stuck with the tax.
The Treasury says that less than half first time buyers pay stamp duty. But with small flats in need of considerable work in London costing approaching GBP200,000 that figure is disingenuous.
The Halifax says that, if the thresholds had been increased in line with house price inflation between 2002 and 2008, then the thresholds would be GBP191,000, 720,000 and 1,440,000 respectively.
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