When we wrote about how home buyers want to see stamp duty reformed just two days before George Osborne delivered his Autumn Statement, we did not dare to hope the Chancellor would act so quickly to remove the unfair ‘slab’ nature of the tax.
Under the sweeping changes announced by George Osborne, the government claims that 98% of buyers will be better off, especially low and middle income families and first-time buyers. Previously, the tax started at 1% on sales from £125,000 to £250,000, increasing to 3% on sales up to £500,000. On properties up to £1m 4% was charged, which rose to 5% on homes between £1m and £2m and 7% for properties worth more than £2m.
Now stamp duty will consist of marginal tax rates, similarly to income tax. There will be no tax levied on the first £125,000, then 2% on the portion between £125,000 and £250,000. Up to £925,000 5% will be charged and a rate of 10% will apply after this up to £1.5m. Then the levy really kicks in after £1.5 million where 12% will be charged on the amount above this. The Treasury says that a family purchasing a £400,000 home would have a reduced tax bill of £10,000 in comparison to before.
Another tax on London
While we welcome the fact that most people will pay less, we think that charging a higher level of stamp duty than before on properties worth over £937,500 is a mistake. This is because it’s likely to affect mainly buyers in London, where prices are much higher.
It’s been estimated that buyers in London and the South East will contribute around 75% of all stamp duty collected in England and Wales, with property worth over £1m in London contributing 38% of the total. Many of these properties are far from mansion-sized and may mean their owners take the decision to stay put or extend, rather than sell.
As well as this, prices on properties below the £937,000 threshold may ironically be pushed up. This is because before sellers may have avoided putting their properties on the market for more than certain thresholds, such as the £250,000 level. Now, there’s nothing stopping them as the rate’s changed and potential buyers won’t be put off.
The elephant in the room, namely the lack of housing supply available, isn’t being properly addressed. If we want to ensure there are enough properties for first-time buyers and that there’s fluidity in the market; a proper home building programme is essential. Noises have been made about this, but not enough is being done to change planning policy and cut red tape for developers. Stamp duty changes aren’t enough to solve the underlying issue.
Image credit:August Brill (flickr.com)