Insights

The Stamp Duty debate

October 2014

The Stamp Duty debate

There is a growing campaign to reform the current stamp duty tax system as evidenced by increasing newspaper publications and even a discussion in Parliament. Many property experts and MPs are asserting that the £1 billion per month raised through stamp duty is holding back further growth in the economy and a rise in the thresholds could boost the housing market and, in particular, give a helping hand to buyers at the lower end of the scale. There has been a focus on the Help to Buy Scheme but questions are being asked as to why the stamp duty system has not been addressed with the same support.

Stamp Duty Doubles

With the recent uplift in house prices, buyers liable for stamp duty has more than doubled in the past decade. It is anticipated that within the next three years stamp duty will be payable on around half the number of housing transactions and by 2018 on 80% of all house purchases.

The problem lies with the immediate impact of duty once a price threshold is reached. A transaction between £125k and £250k attracts duty of one percent, but once a transaction falls between £250k and £500k the duty is assessed at three percent. Recent figures show that more properties than ever fall within the three percent bracket, causing often unexpected cost to hard pressed buyers. The impact of the current system clearly has an increasingly adverse impact on buyers in the South of England.

If stamp duty had remained in line with rising house prices the current three percent tax bracket would only apply to houses worth over £1.3m.

A Political Football

This issue is rapidly becoming a dividing issue between the various political parties. The Conservatives have been blaming the previous Labour Government for not reforming the system whilst they were in office, causing middle-income households to fall into the tax net. More recently the Liberal Democrats and Labour are calling for the introduction of an additional threshold referred to as the "Mansion Tax" to apply an inflated tax rate to houses over £2m.

With the present budget deficit there seems to be little appetite in the political sphere to ease the burden at the lower end of the scale. Without a change in the current rates revenue from stamp duty is expected to more than treble to over £18 billion over the next decade.

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