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Is stamping out stamp duty really the answer?

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Profile photo of Marie Kemplay Marie Kemplay Money Research team
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Would reducing stamp duty, or stamping it out altogether, help you to buy your first home? Or is stamp duty just the price we have to pay to get a foot on the property ladder?

Anyone buying a property worth more than £125,000 has to pay Stamp Duty Land Tax. Rates start at 1% for the lowest value properties and increase in bandings through to 7% for properties worth more than £2m.

On top of saving up for a deposit and covering all the other costs, such as legal fees and surveys, stamp duty can be a burden buyers struggle to afford.

Stamp out Stamp Duty

The Taxpayer’s Alliance (TPA) has launched a ‘Stamp out Stamp Duty’ campaign. It thinks the second stamp duty banding of 3% for properties worth £250,001 – £500,000 is where buyers really start to struggle. Last year more than 25% of property purchases attracted stamp duty of 3% or more. On a property worth £250,001 that’s an extra £7,500 to stump up.

The government is already making efforts to boost the housing market through its Help to Buy scheme. It wants to get the housing market moving to keep the economy booming. However, given the reality of our personal finances, as our recent findings suggest, many are struggling to make ends meet let alone invest in a home they can call their own.

Stamp duty paid by sellers

The TPA are not the only group pushing for stamp duty reform. A few weeks ago a group of 40 Conservative MPs published a report suggesting that sellers, rather than buyers, should be liable for the tax. Although such a move would help first time buyers, it would do little to help existing property owners move house.

And the Scottish Parliament has just voted to scrap stamp duty and replace it with a new Land and Buildings Transactions tax. Although final details will not be finalised until next year it has been suggested that property purchases worth under £180,000 will attract no tax at all under the new regime. The tax would then be applied in stepped rates above that, to end the current situation where there are big increases in cost at different thresholds.

A friend of mine is house hunting at the moment and limiting her search to properties within the £250,000 bracket as 1% is the maximum she can afford to pay for stamp duty. Have you based your property choice on a stamp duty banding or were you able to take advantage of the stamp duty holiday? How do you think we can keep the housing market moving while keeping property affordable?

Comments
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Jayne Lutwyche says:
6 August 2013

Not paying stamp duty helped me to purchase my first home during the stamp duty holiday a couple of years ago.

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Susan Crowe says:
6 August 2013

A huge problem is the the increases in stamp duty are not graduated. Once you go over the threshold you pay the new higher rate on the entire purchase price.

Pay £499,000 and stamp duty is 3% on the entire purchase price
Pay £501,000 and stamp duty is 4% on the entire purchase price 🙁

Should be 3 % plus 4% on everything in excess of £500,000 in the same way that income tax works.

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John Ward says:
6 August 2013

The government has even abolished the Disadvantaged Areas Relief from Stamp Duty Land Tax – there was a higher threshold [£150K] before the tax. It doesn’t sound like much of a relief but since such areas typically have lower value housing it did assist people to get a little further up the housing ladder without being caught for stamp duty.

Where we live in Norfolk house prices are quite low compared with other parts of the south-east. This is the description of a typical property on the market at £250,000 : “Situated on a select small development of modern homes, with river frontage . . . a four bedroom detached house in a town centre cul-de-sac position with double garage; . . . gas heating system via radiators, double-glazed windows and rear garden with patio seating areas overlooking the river.” For £125,000 you can get: “A three bedroom ex-local authority mid-terrace house with two receptions, double-glazed windows and gas heating system via radiators. Accommodation comprises; entrance hall, kitchen, lounge, dining room, rear lobby, cloakroom, shower room, outside utility, landing, three bedrooms and family bathroom . . . gardens to the front and rear”. All the flats and a third of all the houses on the market are below the stamp duty threshold, so in this part of the country the stamp duty levels and bands are not a problem affecting many first-time buyers – indeed they can acquire some very desirable property. There are some very good-quality three-bed detached new-builds – eligible for the Help to Buy scheme – currently available at under £200,000 [£10,000 deposit]. As people trade up to these they release lower value homes to supply different sectors of the market; many of the smaller houses get bought up by landlords, however, which meets a need but has an impact on owner-occupation and flexibilty in the market.

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rarrar says:
6 August 2013

I agree with Susan, while having nothing against Stamp Duty it is difficult to see why it has to be done in steps and not progressive like income tax.

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oliver s says:
7 August 2013

Income tax is not really progressive. It leaps from 20% to 40% albeit on marginal income . To be truly progressive , there would be interim rates of 25%, 30% and 35% .

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John Ward says:
7 August 2013

I would not advocate total abolition of stamp duty but I do think it should be graduated and not start from the bottom when the first [£125K] threshold is reached. One consequence of the present rate structure is that it has constrained house prices at the tipping points which has possibly been helpful to buyers although less welcome for sellers. I feel that people who campaign to get rid of any form of tax should have to say how the lost revenue will be recouped – unless I missed it on the TPA’s website, they seem to avoid mentioning that this measure brings in around £6billion a year.

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rarrar says:
7 August 2013

Agree John, revenue has to be raised somehow and all taxes are “unfair” to someone. People seem to get far more worked up about Inheritance tax which has a massive threshold and is then progressive and very few people actually pay any !

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dieseltaylor says:
7 August 2013

“More than £4bn was paid in stamp duty in the tax year to April, and nationally more than one in four transactions attracted duty at a rate of 3pc or higher, according to the TaxPayers’ Alliance, which is campaigning for the tax to be simplified and the thresholds raised. 2
Telegraph

Graduated makes sense.

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John Ward says:
7 August 2013

Thanks for the update on the revenue from Stamp Duty. It’s still a huge sum, and finding it elsewhere would probably have to impact mostly on the better-off otherwise it would be an extremely regressive tax hike. The Tax Payers’ Alliance campaigns for greatly reduced public expenditure so it might have some ideas of where massive savings could be found – again without making things worse for the most vulnerable people in our society. Or perhaps they don’t care about that, so long as the higher tax payers are alright.

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