Ray Boulger of Charcol comments: “The current structure of stamp duty land tax is one of the main obstacles to first-time buyers acquiring that all important first property, and does not even remotely represent a fair basis of taxation for today’s property values. We have repeatedly called for a reformed system of calculation, more accurately mirroring income tax structures. With income tax, the higher percentage rates of tax are only payable on the amount of income over certain thresholds. However stamp duty land tax traps sale prices into bands that distort the property market and lands purchasers with a hefty additional payment that is often that one expense too much for first-time buyers desperate to get a foot on the property ladder.”
Example
A buyer wants to purchase a home priced at £250,001. They would currently have to pay 3% in stamp duty tax for this property, a total of £7,500. Yet if they bought that property for £250,000, they would only pay £2,500. Thus a £1 increase in the price results in a tax increase of £5,000.
Boulger continues: “The problem of how to help first-time buyers is a long-running and well-documented one, but it’s worth pointing out first-time buyers are the lifeblood of the housing market, encouraging liquidity and movement. Restricted liquidity leads to fewer transactions which in turn lessens the amount of tax the Chancellor can reap.”
In spite of other commentators calling for the abolition of stamp duty land tax up to a higher limit for first-time buyers, Charcol does not believe this is a viable long-term option, simply because identifying genuine first-time buyers is likely to be fraught with difficulties, making the scheme very difficult to police. Instead Charcol is calling for an increase in stamp duty thresholds to more accurately reflect the strong house price inflation of the last few years.
Boulger points out: “The average residential property price in the UK is now around £183,000 according to the Land Registry and so even a 5% deposit equates to £9,150 up front. Stamp duty land tax at the current rate adds a hefty 20% to this figure, £1,830, which can be the straw that breaks the camel’s back. We would like to see a clause in this year’s Finance Bill ensuring that the tax thresholds will automatically change each year, up or down, in line with house prices as recorded by the Land Registry. This would at least ensure a much fairer way, on an ongoing basis, of cashing-in on people who simply want to buy their own home. A sensible starting point for the 1% band would be the average property price, as recorded by the Land Registry. Clearly the higher bands of £250,000 and £500,000 would need to be increased as well and it might make sense to introduce a 4th band higher up the scale.”
In addition, Charcol is calling on the Chancellor to eradicate the misery caused by the current inheritance tax limit. Boulger explained: “It is unacceptable for the IHT threshold to be as low as £263,000 when soaring property prices over the last few years have pushed the value of millions of homeowners’ properties above that level, before even considering any other assets. With even many small two-bedroom flats in some areas worth more than this figure, imposing a whopping 40 per cent tax on part of the estate of the modest homeowner certainly won’t be a vote-winner.”
