All homebuyers should support the Stamp Out Stamp Duty
campaign just launched by the Taxpayers Alliance. Their campaign has just been
launched with the aim of getting this unfair property tax abolished.
Stamp Duty Land Tax (to give it its full name) is calculated
on the purchase price of homes and has to be paid by the buyer. Only homes
worth below £125, 000 are exempt. Above that figure the rate of tax currently
starts at 1%, and rises in steps right up to 7% for homes worth over £2 million.
For some buyers the top rate can be as much as 15%.
Over two-thirds of
homebuyers now pay Stamp Duty
While few of us can afford to pay over £2m, the fact is that
over two-thirds of homebuyers now have to pay tax when buying a home. But that
was rarely the case in the past – stamp duty was generally only payable on
higher value property. Most homebuyers did not have to pay anything at all, and
those who did generally paid duty at less than 2%.
But now, with average home in England and Wales now worth just
over £162, 000 (according to the land registry) far more buyers find themselves
having to pay some duty.
If you want to buy a home in London or the South East, the
chances are that you will have to pay over £250, 000 for a reasonable property –
which brings your property into the 3% bracket. Pay over half a million for
your home and the stamp duty jumps to 4%, then 5% between £1m and £2m.
Residential land or
property SDLT rates and thresholds
Purchase price/lease premium or
Up to £125, 000
Over £125, 000 to £250, 000
Over £250, 000 to £500, 000
Over £500, 000 to £1 million
Over £1 million to £2 million
Over £2 million from 22 March 2012
Over £2 million (purchased by certain
Lack of joined-up
Government ministers have for some years kept saying that
they want to encourage growth in the housing industry. To that end they have
introduced various initiatives aimed at helping people to buy new homes. But it
seems that while the government is prepared to find money to support these
schemes, they are not prepared to cut or abolish Stamp Duty – is this joined-up
Stamp duty in one form or another has been around for over
three hundred years. Legal and other documents had to bear an embossed stamp to
show the duty had been paid. Originally the duty was just a fixed amount for
each sheet of paper in a document, but in the early nineteenth century that
changed to the present system where duty is paid on the value of land transactions.
In 2003 stamp duty was replaced by Stamp Duty Land Tax
(SDLT) but there were no substantial changes in the way the tax is charged. The
only difference is that property transfers no longer have to be actually
stamped – but the duty still has to be paid! It would be more logical to call
the tax a Property Purchase Tax – but perhaps that would alert people to the
true nature of SDLT.
profit from greater numbers of home-owners
Back in Victorian times few people apart from the very
wealthy actually bought land – most people rented. So very few people would
have encountered stamp duty. But with the expansion of home ownership during
the twentieth century more and more homeowners have found themselves having to
pay this tax on house purchases.
It is understandable that the Taxpayers Alliance is opposed
to this form of tax. Several studies have shown that stamp duty has an adverse
effect on the housing market, such as:
- stopping young people being able to buy a home
- making it harder for homeowners to buy a larger
property when their family needs more space
- acting as a brake on people wanting to move to
take up a new job
Little incentive to
abolish Stamp Duty
But successive governments have shown little inclination to
make any significant changes to the system. Indeed the present government has
added new higher tax bands, while making few changes which would benefit ordinary
One of the reasons for this inertia is that stamp duty is
cheap and easy to collect. The land registry will not register any property
transfer or lease unless they have evidence that a tax return form has been
submitted to the Revenue, and any tax has been paid. So buyers have little
option to pay up or they won’t get good title to their property.
This return form is usually completed by buyers’ Conveyancing
Solicitors, who also arrange payment. So the government gets its money with the
minimum of expense on its part.
Stamp Duty can
prevent sellers getting a fair price
Another major criticism of the present stamp duty regime is
the ‘slab’ nature of the tax bands. Unlike income tax, which is calculated on
the amount of income falling within each tax band, SDLT is calculated at the appropriate rate on the whole amount of the purchase price. For
example, if the price of a home is £400, 000 tax will be charged at 4% on the
whole price, i.e. £12, 000.
This has the effect of causing house prices to bunch at the
threshold points. It will be difficult to sell a property at say £260, 000,
because of the tax jump from 1% to 3% above £250, 000 – which means £2, 500 tax
on £250, 000 leaps to £7, 800 in £260, 000.
This means sellers are often unable to get a fair price for
their property. Sometimes sellers try to persuade buyers to pay a higher price
but agree a way of avoiding the higher-rate tax. This might be agreeing to sell
the house for £250, 000 but also making the buyer purchase various furniture and
carpets at a hugely inflated figure.
As always, high tax rates lead people to try and avoid tax.
For some time various schemes have been concocted which can help to reduce SDLT
on commercial transactions. But in recent years these schemes to private
individuals – do an internet search for ‘stamp duty’ and you will see ads for
these avoidance schemes.
To counter this trend, the government has had to introduce
punitive measures in successive budgets aimed at outlawing tax-avoidance
Abolishing Stamp Duty
won’t cost much
Wouldn’t it be easier to stop all this excessive legislation
by abolishing SDLT? If the tax was abolished just on residential property it
would cost the government about 1% of its total income. When the property
market crashed the government’s income from SDLT on all types of property
dropped from nearly £10 billion to less than half that figure the following
year. Presumably this was made good from other sources.
So there would seem no reason why SDLT – the unfair tax on
homebuyers – should not be abolished now.
If you agree, why not sign up to the Stamp Out Stamp Duty
campaign, and make your views known to your MP.
(N. B. Perhaps the government should remember that it was the
imposition of stamp duty on the American colonies which led them to revolt and
declare independence in 1776. )