I do not like Stamp Duty. Houses are dear enough, without imposing an extra tax on people trying to buy a home.
I am also a realist. This Coalition government, and any likely successor, will need revenue from taxing property transactions. They are not about to abolish the tax and give up the money. We need to find a fairer way of charging the tax, and set rates which are more affordable so there can be more transactions. That way homes can be cheaper, and the taxman can still raise substantial sums of money in a more buoyant economy.
One of the worst features of the current Stamp Duty is the cliff edge approach to the rising tax rates. Buy a home for £125,000 and you pay no tax. But a home for £125,001 and you pay £1250 of tax.
The increases in tax at threshold points become very high as the price of the property rises. Pay £1 over £250,000 and your Stamp Duty bill shoots up from £2,500 to £7,500, a 200% increase, or an extra £5,000 on your purchase. Pay £1 over £500,000 and your Stamp Duty bill surges from £15,000 to £20,000, another £5,000 increase, though a smaller percentage.
Pay £1 over £1million and your Stamp Duty bill is a hefty £10,000 more, rising from £40,000 to £50,000. That’s £50,000 tax to buy a one bed flat in central London, for example. Be in the fortunate enough position to be able to buy a 2 or 3 bed flat in the best parts of London and you would have to pay £100,000 of Stamp Duty at £2m. Pay £1 more and the tax bill climbs to a giddy £140,000, a £40,000 increase. Just the increase in the Stamp duty is considerably higher than average annual earnings.
The £1250 tax rise at £125,000 and the £5,000 tax rise at £250,000 are particularly onerous on many people trying to buy a family home in many parts of the country. It can be the last straw, that stops people buying the home they need and want.
The cliff edge thresholds of course distort the market. Homes for sale cluster just below the threshold points. There are large tracts of pricing territory but sparsely populated with homes for sale. £250,000-£260,000, £500,000 to £525,000, £1m to £1.1 million are not popular. The tax intervention creates a lumpy and jumpy market, where there are gaps in price availability, with vendors either holding down the price or leapfrogging it upwards, clear of the danger zone.
So my main recommendation for reform would be to make the Stamp Duty levy progressive like Income Tax. A home priced at £300,000 should pay no Stamp duty on the first £125,000, 1% on the next £125,000, and 3% on the last £50,000 of the price. Total Stamp Duty under this system would be £2,750 on a £300,000 house, instead of £9,000 today.
This would make homes more affordable. Could there be a loss in revenue? There may not be. Transactions would increase. The loss of revenue at the top end, where much of the duty is raised, would be very slight. The London market with its £10m plus transactions at the top end would still see such buyers paying nearly £700000 as today on a £10m purchase. The higher the price, the lower the loss of revenue as a proportion of the tax from the system I have described.
Given the political dislike of rich people and high property prices in modern UK, the government could introduce a hybrid system, where anything over £2m still had to pay 7% on the lot.
August 26, 2013
Of course you are right! Anything that helps the economy and helps people live better, easier lives must be good. And taxes, like death, are inevitable.
Please may I remind you that the Great Scotsman did his very best to wreck the tax system by making it so very complicated? It must be so easy for a clever tax advisor to get people out of paying taxes – and all quite legally too. Instead of our London government deliberately confusing tax evasion and tax avoidance (like deliberately confusing the debt and the deficit) how about some serious simplification?
Oh – sorry – the LibDems would never allow it.
August 26, 2013
Why not have stamp duty kick in at £150,000 and for every thousand above that pay a small percentage . 3% of £240.000 exceeds 3 % 0f £160.000
August 26, 2013
Something many working in the housing market have been saying for decades.
August 26, 2013
Off-topic:
http://www.telegraph.co.uk/finance/financialcrisis/10265302/Britain-to-be-roped-into-EU-rescue-aid-for-Greece.html
Cameron said this wouldn’t happen, because he had “repatriated the bailout power” in exchange for giving Merkel the EU treaty change she wanted to make sure the eurozone states had the legal right to set up the ESM, which treaty change was formalised through European Council Decision 2011/199/EU of March 25th 2011.
Not that the treaties provided any “bailout power” to be repatriated; as openly admitted by Lagarde, the Greek and Irish bailouts were totally illegal.
August 26, 2013
Denis,
We know that Cameron’s word is worthless, especially concerning the EU. Our host will, however, continue to implore us to support his party, led by such a duplicitous and mendacious man.
August 26, 2013
Spot on Brian. He also said he would help the Euro directly or indirectly. The IMF has helped the Euro, the UK helped Ireland etc. you cannot believe a word Cameron says, it would appear infectious from Clegg.
Why can’t the government stop stamp duty? It could stop stamp duty if it stopped spending on the likes of overseas aide, EU, cut welfare etc. it is about choices not just about what is affordable. Of course was there not an issue about MP flip flopping houses to avoid tax,stamp duty etc and was it not Cameron who promised early legislation to prevent political sleaze? Three years on and still waiting.
August 26, 2013
Erm we need to keep our eyes on the ball here and see who is actually getting “bailed out”. The Greek government gets the cash, which it then uses to repay its debts to the mainly German banks who lent them the money in the first place. The troika then imposes the austerity to ensure that the Greeks can service the “”bailouts”.
Until you sort out how is at fault here i.e. the banks, nothing is going to change. If I were Zorba, I would default, face the short term pain and keep hold of my sovereignty. Other than that its the family silver being sold off at knock down prices e.g. the port at Piraeus to the Chinese
August 26, 2013
Greece is trying not to default because the problems caused by defaulting will be much worse than any problems caused by needing repeated bailouts.
August 26, 2013
Don’t you know that Greece has already defaulted? The question is whether it would have been better or worse if she had defaulted by leaving the euro and redenominating her debt in drachma. Some of her “friends” in the eurozone could have helped to make that a better option for everybody, but for geopolitical reasons they gave priority to preserving the present eurozone intact.
August 26, 2013
With that logic Uni, we will be bailing out for ever and ever.
August 26, 2013
Mr Redwood,
We are not Eurozone members.
How come we are bailing out the Euro?
Isn’t this the responsibility of the ECB?
Are the government going to sit back and allow this to happen?
The UK should withhold further contributions from the EU until we can be sure that our money is not being used to prop up the Euro.
Reply I am against us subsidising the Euro and have voted accordingly in Parliament.
August 26, 2013
Back to Germany again and do as they do. Impose a form of CGT if you sell the property in less than ten years of commencing ownership of it. Now you can understand why property is cheaper there because there is no flipping for profit and people treat their home as place to live in and not as a substitute ATM. You really have to laugh at how stupid some people are. I remember a friend telling me they had done a remortgage for someone prior to 2007 were the “equity” released was going to fund a new Audi TT, two weeks in Turkey and set of implants for his wife. We are supposed to consider that sort of stuff as being foundations of the UK economy?
PvL if you are reading this article perhaps you would like to comment on the malign effect of the rapidly deflating residential property bubble is having on the Dutch economy at the moment?
Reply Equity withdrawal from housing can make sense, if people have the income to sustain the resulting liabilities. Bringing forward consumption by borrowing in moderation can make a lot of sense for the individual and can help economic recovery.
August 26, 2013
Equity withdrawal from housing can indeed make sense sometimes.
It can but the deals on offer are usually a bit of the rip off as with most financial products in the UK.
Indeed the tax and benefit system really just encourages many to borrow and spend as much as they can so the government does not later use it for care or take it in IHT.
The government want people to be feckless, just as they are themselves, it seems.
August 26, 2013
These deals can certainly be a rip off, allowing some people access to credit, but leading others to default and lose real assets.
zorro
August 26, 2013
What by flooding the UK with imported granite worktops, home cinema systems etc and than facing a hangover in demand as we do now?
Off topic JR but has wee Willie Hague convinced you yet that we should be taking our first fatal steps into Syria yet? Have a read of this from “Ha’aretz” (Israel’s answer to “The Guardian” on why we are being fed a load more WMD like fallacies …
“Western experts on chemical warfare who have examined at least part of the footage are skeptical that weapons-grade chemical substances were used, although they all emphasize that serious conclusions cannot be reached without thorough on-site examination. Dan Kaszeta, a former officer of the U.S. Army’s Chemical Corps and a leading private consultant, pointed out a number of details absent from the footage so far: “None of the people treating the casualties or photographing them are wearing any sort of chemical-warfare protective gear,” he says, “and despite that, none of them seem to be harmed.” This would seem to rule out most types of military-grade chemical weapons, including the vast majority of nerve gases, since these substances would not evaporate immediately, especially if they were used in sufficient quantities to kill hundreds of people, but rather leave a level of contamination on clothes and bodies which would harm anyone coming in unprotected contact with them in the hours after an attack. In addition, he says that “there are none of the other signs you would expect to see in the aftermath of a chemical attack, such as intermediate levels of casualties, severe visual problems, vomiting and loss of bowel control.” Steve Johnson, a leading researcher on the effects of hazardous material exposure at England’s Cranfield University who has worked with Britain’s Ministry of Defense on chemical warfare issues, agrees that “from the details we have seen so far, a large number of casualties over a wide area would mean quite a pervasive dispersal. With that level of chemical agent, you would expect to see a lot of contamination on the casualties coming in ,and it would affect those treating them who are not properly protected. We are not seeing that here.” Additional questions also remain unanswered, especially regarding the timing of the attack, being that it occurred on the exact same day that a team of UN inspectors was in Damascus to investigate earlier claims of chemical weapons use. It is also unclear what tactical goal the Syrian army would have been trying to achieve, when over the last few weeks it has managed to push back the rebels who were encroaching on central areas of the capital. But if this was not a chemical weapons attack, what then caused the deaths of so many people without any external signs of trauma? ”
Reply No, I am not in favour of any UK military involvement in Syria. There are various issues about the recent deaths and casualties that independent experts have to review, including the ones you mention.
August 26, 2013
This blog is in danger of confusing different issues and so completely clouding the possible solutions
Isupport the idea of charging CGT on short term sales on a progressively reducing basis possibly extending to fifteen years. This is not the same thing as equity release where the property is retained and the mortgage extended. This latter process is that used by any serious investor in property.
Similarly going back to the original subject moving to progressive stamp duty does not need to imply a reduction in tax yield as this is determined by the rates and boundaries that are set.
However it is much more desirable, at least in the business world to move the tax take as late as possible. Thus using CGT to raise themajority of the tax rather than stamp dutyisextremely desirable. I would favour a complete move to CGT with an allowance during the transition for any stamp duty previously paid. However care must be taken that this does not put a brake on business expansion.
August 27, 2013
I recently read an article in the Grauniad which (if true) is cheering. Although borrowings for new mortgages are going up, the increase is less than than the net repayment on old mortgages and credit cards. This suggests that overall the ratio of average household debt to household incomes is still drifting gently downwards. I think this is healthy because household debt is still at a high level. Mr Redwood, with an election to fight, may disagree.
August 26, 2013
Well, at the very least the government could have a formula that allowed the duty rate to increase smoothly from 0% to 7% depending on price and without the sudden thresholds, or is such a simple maths formula beyond the government? The top rate is actually 15% for properties of £2,000,001 + owned by non-natural persons.
Turnover taxes of at these rates are totally absurd. Just theft really of course it is even worse when as currently the government usually just wasted the revenue on HS2, quack energy, counterproductive wars and now EU Greek bailouts it seems.
Fair would be a fixed charge of say £2000 per conveyance all pay the same.
Progressive would be say 1% of value so some one buying at £100K pays £1K and at £2M pays £20K twenty times as much.
Farcical would be someone at over £2M paying £300K in stamp duty 300 times at much!
So we get from Cameron the farcical, plus of course (with the IHT ratting) 40% of its value on death of the owner too.
August 26, 2013
The problem with Stamp Duty on house purchase is that it hits at the point of least liquidity and as you say clearly acts as a disincentive to transactions with the consequent undesirable effect of reducing labour mobility. The justification for high Stamp Duty would appear to be the state’s entitlement to a share of the above inflation rise in house prices. This however is an unintended, but entirely foreseeable, consequence of Harold Wilson’s exclusion of a ‘principal residence’ from CGT; another is the call for a ‘Mansion Tax’. I concur with nina Andreeva that ‘principal residences’ should be brought within the scope of CGT. However undesirable any form of Tax is, CGT at least comes at the point of liquidity after a sale. I however would put houses on the same terms as everything else. While they are just a house, they have become seen as something hugely desirable simply because of their tax status and money has been piled into them at the expense of other more productive investment. People should have the freedom to choose how they provide a roof over their head but I do not think their decision should be skewed one way or the other by the tax system. If houses had identical tax treatment to other forms of investment, a one off fall in house prices could be expected, together with a slowing in the rate of house price inflation and I would regard these outcomes as entirely helpful in that they would make it easier for people to buy a house, if that was what they wanted to do.
August 26, 2013
The Swiss, you know, are pretty good with money. They have CGT on residences but not on other buy-sell transactions. Prices are high but relatively stable. Maybe we can learn from them?
August 27, 2013
You only have liquidity to meet a CGT bill if you aren’t buying another property. Otherwise, the CGT will probably mean you’d be downsizing, as you couldn’t afford that and a larger house. In practice that means you simply wouldn’t sell, but instead enter into a rental chain if you had to move. CGT is not a useful way of preventing bubbles – especially when you already have a bubble that you need to deflate.
August 28, 2013
William
You may have a point if taper relief were available, and nil tax applied after a number of years.
At present Capital gains tax is unfair as it penalises people who hold assets for the longer term, and who thus fail to make use their yearly relief.
The present rates and scales for Stamp Duty is excessive, leads to price banding, is quite illogical (no other tax like it) and makes house moving for a job or any other reason a very expensive choice, which acts as brake on freedom of movement.
Given we want people to have freedom of movement within the UK (not from outside) the fact that we financially penalise such movement is simply daft..
August 26, 2013
It was mainly the stamp duty and other costs which stopped us from downsizing when I retired. We could have bought a similar quality smaller house, but the difference in price was less than the stamp duty and other costs that we would have incurred. The result is we have remained in a 4 bedroom house with a large garden far more suited to family occupation, and for which there is quite a demand. But the maths simply didn’t add up, there is no point down sizing with all the hassle involved if one is not going to be any better off.
August 26, 2013
Indeed excessive stamp duty rates force people to live in the wrong houses in the wrong places. Making them commute further for example or live in houses too large for them or apart from relatives.
Excessive taxes can be hugely damaging to the economy and peoples’ lives.
August 26, 2013
I am also a realist. This Coalition government, and any likely successor, will need revenue from taxing property transactions.
==============
But you don’t say why. It’s not that the money is going on services. It’ s going on debt.
With the true debt going up at 850 bn a year, you will tax no matter what the harm that results.
Then you will add to the debt with projects like HS2, which is nothing more than a cargo cult. Spend money in the hope you get more.
Reply I have proposed spending cuts to get the rate of new borrowing down. I have not identified enough that any elected government is going to do to cut overall tax revenues at the same time as eliminating new borrowing.
August 26, 2013
To reply:-
If they cut expenditure and tax rates (but continue some borrowing) and set a low tax agenda they will get some confidence going. They could reduce borrowing later as the growth materialises. Start with the broken IHT promise (in fact abolish it) and reduce stamp duty to just 1% for all and a top income tax rate of 30%.
Alas it is now far too late Cameron he has blown it and missed the open goal that Brown offered him. UKIP in 2014 and Labour in 2015 it seems is inevitable. Even though Miliband is clearly useless and the voice of the state sector unions.
August 26, 2013
In other words you only want tax cuts for the wealthy. Odd how you never mention any tax cuts that will benefit ordinary people more than millionaires.
August 26, 2013
How do you work that out? The wealthy would pay more tax at 30% and ordinary people would pay less stamp duty at 1%.
August 28, 2013
I am in favour of tax cuts at all pay levels.
August 26, 2013
Osborne was reported to make the claim any Tory government if elected would not make tax rises. Is this the same man who claimed 80/20 in spending cuts and tax rises last time around. Goodness, the Tory leadership is useless at convincing the public.
August 26, 2013
The trite response is that this is because it is in a Coalition. The true reply is that they are frightened to veer away from the Blair/Brown way in case they are deemed to lose short term popularity. This never bothered Thatcher, and this voter won’t go back to Tory unless or until there is a change of leadership.
August 26, 2013
Instead of meekly rolling over and saying ‘government’ needs the money, what about getting a government that needs much less of other people’s cash to function?
August 26, 2013
You say you are a realist and that any future government will need the money. How about the reality of not spending the sum involved and then you could forget about imposing this tax.
Government does too much and usually does it badly at great cost. If HS2 was such a great idea why is it that a private enterprise organisation is not pushing to do it until the government offer them a bribe in the form of a subsidy. I would prefer government to shrink its’ interference in our lives by at least 50%, you might then begin to see government debt reducing rather than doubling since Gordon Brown. Getting out of political Europe would cover the cost of Stamp Duty twice over.
Reply Of course government should spend less, and I have often suggested ways of doing this. However, the government is currently borrowing £120bn extra each year so we are miles off not needing all the tax revenue
August 26, 2013
Reply to reply
You are still trying to hit the hammer with the nail. You need to get this the right way round.
August 26, 2013
The problem with these arguments is that the tax has no effect on the price of the property. Nobody is going to sell 125k house for one pound more so in all cases the tax is absorbed by the seller as a reduced house price. As you point out John few feel any sympathy for those buying expensive houses and as these people especially at the top end of the scale avoid taxes in many ways even council tax and has we have seen even stamp duty, this is one of the ways they can be fairly taxes for living in a politically stable democracy that enables them to safely enjoy their wealth. If they do not like it they can leave and have their lives outside London. Bluffs need to be called. The bedroom charge is costing the state money, but no mention. How so? Reducing benefits when no other smaller property is available is a tax no if or buts and a charge on the tax payer.
August 26, 2013
The reduced bedroom tax (actually benefit reductions) are not going to net tax payers very often.
August 26, 2013
They are on benefits at the bottom of society so your point is that they should face further hardships to incentive them or as they do not pay tax it is OK to reduce their benefits?
August 26, 2013
According to the DWP the bedroom tax affects 660,000 households, so will will effect many people.
August 26, 2013
Off topic, but can someone please counsel some restraint on the Foreign Secretary who is positioning himself come hell or high water on R4 to act without unanimous UN backing…..I doubt that he’ll recall Parliament either. This is all highly suspect, the rebels have been losing badly in recent days with large numbers being captured, and some of their commanders being ‘resigned’ by their own people. The UN are there to inspect the sites, and it must be clear that there’s is only one side who would have benefitted from this alleged chemical attack…… The Medecins Sans Frontieres claims are not verified as they have no people on the ground there…. It seems that the Western Powers are purely using this as a pretext to intervene. Does anyone remember the Daily Mail article a few months ago alleging that the US was behind efforts to arrange an ‘incident’ and also Carla del Ponti, the UN Inpector saying tht it was highly likely that the rebels had used chemical weapons….. Sorry to be off subject, but this is likely to escalate very seriously.
zorro
August 26, 2013
I tend to agree.
August 26, 2013
May I suggest the Government would not have to raise so much revenue from other taxes if they didn’t insist in intervening in other countries disputes. Which have nothing to do with us!
August 26, 2013
The thing is, how did this stupid bit of legislation get through our esteemed parliament? Didn’t any MP on the Bill Committee spot that this be a dumb way to apply a tax? Is it such a big job to change the formula now or is the executive too scared of unknown unknowns?
Anyway there is an XLS that shows SDLT by parliamentary constituency. Somebody must have asked for it? http://www.hmrc.gov.uk/statistics/stamp-duty/table15-5-1112.xls . So you can see where all the rich people live.
August 26, 2013
@Acorn
Did I read it right? total £4.2 billion?
About the same as the annual increase in foreign aid bungs.
August 27, 2013
Yes, £4.2 billion for residential and another £1.9 billion for commercial property, total £6.1 billion.
The OBR last March, penciled in £6.9 bn for 12/13 and £7.7 bn for this tax year.
August 26, 2013
The present system is so self-evidently asinine that one struggles to believe anyone could have proposed it. Am I right in thinking that the House of Lords said nothing because the current way Stamp Duty works was part of a Money Bill?
August 26, 2013
No economically sane person could argue with the need for change to a progressive system. I do not agree with lowering the overall take and would favour instead the abolition of the death property tax aka IHT. The middle class predominantly get stung for IHT, which is easily avoided for those with surplus assets and the readily available professional advice.
August 26, 2013
What is your solution to the house price banding of properties which has not changed since 1993? A political time bomb as you well know.
August 27, 2013
Council tax is determined locally, not nationally. So all that really matters is whether RELATIVE prices for each band have altered within a particular district. This is why there is no great clamour to revalue.
August 26, 2013
I am in complete agreement with one exception : I see no reason why owners of the most expensive houses should be singled out for draconian special treatment.
This opens up a wider debate : why should individuals at every level of pay have to find increasing higher rates of tax ? I believe that the overall amount of tax paid to the state by an individual should be far more equitable. Consider an example :
A single friend of mine earns £60,000 pa. Not a huge salary in 2013.
He works 75 hours a week in a very demanding job and deserves every penny.
He has taken almost nothing out of the state ( his company provides private health care, he has no children and didn’t go to University ). Yet he loses more than £18,000 in tax and NI and the additional NI his employer has to pay takes the total tax taked on his salary to more than £25,500 or 42.5% of what he earns.
I ceased to be a highly paid employee on PAYE at the age of 40 more than 20 years ago because the financial reward after tax at 40% was simply not worth it. Since then I have been self employed and have managed my income to earn what I need without paying ridiculous rates of tax and NI.
Governments need to understand that income tax at 40% or more plus very high rates of NI are tremendous disincentives to individuals to work hard. Especially when they lose another 20% in VAT on anything they buy and even more when they fill up their tank at the garage.
The only long term solution for our economy to return to competitiveness with the US and other countries is to reduce the size and scope of what the state does and then reduce tax rates to what those paying them regard as reasonable. Current rates are simply not fair and equitable at all levels.
The employer of a hard working individual on £60,000 salary should not have to deduct and pay over almost £26,000 in deductions.
My friend on his own could be said to be supporting one whole family receiving benefits at the new capped rate and that’s only from the direct taxes he pays.
This is simply ridiculous.
PS : His one person household will also have to find its £3,000 contribution towards HS2 : a service he will never use !
Reply I agree, which is why I have proposed lower rates of tax on earnings and enterprise.
August 26, 2013
On Syria, no intervention without a majority voting for it on a free vote in Parliament.
A vote of no confidence in the PM and FM if they do it unilaterally.
We don’t need the trouble and expense of intervention even if Cameron and Haigh wish to impress
foreigners that they are good chaps (as Blair did, usually to our detriment.)
August 26, 2013
As long as there is a ‘political dislike of rich people’ in the UK we can forget higher growth and prosperity.
August 29, 2013
This rather depends on how they got their wealth. Your fawning as and believing that everything that is good for them is good for us by the trickle down and horses and sparrows theory is wrong and political dislike of this is good.
August 26, 2013
“I do not like Stamp Duty. Houses are dear enough, without imposing an extra tax on people trying to buy a home.”
Unless you believe that the price of property is closely aligned with the contruction or replacement cost, rather than from scarcity value of the land on which it is contructed or its proximity to locations where school children are not groomed for sex or teachers or their pupils are not stabbed, then the net cost of property irrespective of the tax burden within reason would be the same since the price would be determined by supply and demand and not by the cost of production; that being the case, property tax uniquely would be a tax which would raise money to buy cruise missiles to kill people whom the neocons do not like without costing the house owner anything. Why then does the government refrain from applying CGT to all houses? This would have raised huge sums whilst detering property bubbles.
August 27, 2013
If you apply CGT to owner occupier house sales then you kill the market and replace it with renting every time someone needs to move – especially if you impose it after a bubble has formed. Remember, CGT makes no allowance for normal inflation these days.
August 27, 2013
“Remember, CGT makes no allowance for normal inflation these days.”
I’m arguing in principle only. I don’t like paying tax on unindexed gains, either.
August 26, 2013
Income tax and property taxes are the most degrading and totalitarian of all possible taxes. They send a clear message that the government owns the citizens it is supposed to represent. It’s sheer extortion, just like a Mafia protection racket (but without any protection or representation).
August 29, 2013
Indirect taxation being fair and just for everyone as one can only eat so much food?
August 26, 2013
I must admin I had not realised the tax was quite so high. People should not be paying the government so much just for moving home!
We need a flatter transparent system based on higher income tax if necessary. Paying a percentage of your income to fund services is fine by me. Having to pay the government tens of thousands because you want to change where you live is not ok. What right do they have to take a big cut.
August 26, 2013
@David Hope What right do they have to take a big cut.
Same right as they have to take a big cut out of everything.
August 26, 2013
If you earn average wages and have a look at your payslip you’ll see the government has helped itself to between 20% to 30% of your earnings.
If you buy something the government takes 20% of the price.
If you buy petrol the government takes 66% of the price.
If you buy a house for 250k the government only takes 3%.
Be grateful for small mercies!
August 26, 2013
The Treasury should look at the ownership of properties registered by companies abroad in any review of the taxation on properties . It is a loophole that should be closed . I agree that a graded approach according to the value of the property has much to commend it .
August 26, 2013
The worst of it is that modest houses incur high stamp duty – as modest wages the net of which (after making pension arrangements as the Govt wishes us to) is in the order of the proposed tax-exempt benefit cap at £26k after deductions of 50% tax and NI.
The benefit recipients get a free ‘pension’ too btw.
“Ah. But you need to have a tribe of children to qualify to benefit cap levels.”
And what if I wanted to have a lot of children ? I’d be rather silly to work, wouldn’t I ?
This is not to comment on the iniquities of the benefits system but to highlight how low the threshold is that it is deemed that workers ought to be in for a jolly good spanking both on pay and stamp duties.
This is unhealthy for our country.
Much of our creativity is going in to how to avoid tax instead of enlarging the economy.
August 26, 2013
Put more simply: To take home a similar income to higher end benefits recipients a worker can find themselves at risk of paying tax at 40% – and to buy a home befitting those hard earned wages (quite likely an ex council property in some areas) a whopping 5 grand is levied against it.
August 26, 2013
Please please look at where this money goes before you arbitrarily decide there is no choice but to charge it.
In reality, you are using this money to pay for unaffordable items which the state was never supposed to pay for. By all means charge VAT as a consumption tax, Income tax on earned and unearned income, but why stamp duty on a place to live? As an upfront tax it is more iniquitous than CGT, where at least a gain has been made, or even IHT, where there is wealth to transfer.
August 26, 2013
Looking at the Land Registry data for June the number of sales at £124,950-£125,000 was 1,332 out of 62,958 in total. The price of the 1,332nd cheaper sale was £120,000, and of the 1,332nd more expensive sale £132,000. There were 1,785 sales at £249,950-£250,000: the 1,785th cheaper was at £240,000, and the 1,785th more expensive at £276,000. There were 265 sales at £499,950-£500,000: the 265th cheaper was at £487,000, while the 265th more expensive was at £532,000. Sales at £1m and £2m are too small to provide useful data on one month’s volumes. (Almost exactly half of all sales were at multiples of £5,000)
It is clear that smoothing the impact of SDLT would on average result in higher prices near the break points, and thus higher prices overall. That is before we take account of the fact that stamp duty reductions benefit sellers anyway. But it is also clear that the market distortion is considerable.
Lower SDLT does make it easier for those moving from one house to another to afford to do so – and also easier for speculators to invest as they have less overhead before they are in profit.
Expensive London sales have not been deterred by the higher rates of duty, and are dominated by foreign purchasers as this article makes clear:
http://www.thisismoney.co.uk/money/mortgageshome/article-2340858/85-homes-Central-London-sold-overseas-buyers.html
It reports “The Battersea Power Station development for example has sold out of most of its 866 luxury apartments – all to Singaporean investors looking for a safe haven.”
Perhaps those without UK domicile should pay an extra surcharge to reflect the fact they don’t contribute to infrastructure costs via regular taxes that local people pay. Indeed, an infrastructure charge might even be extended to immigrants via a student loan style scheme that reflected the lack of historic tax contributions and the length of stay: these arrangements would make more sense than Sec 106 and CIL.
It is also worth considering special measures for BTL purchases and sales. A sale by a landlord to an owner-occupier might attract a lower SDLT charge (and possibly a time limited lower CGT charge to encourage sales), while BTL and second home purchases might also be surcharged. That would create a price differential in favour of owner-occupation as an antidote to the BTL subsidies that price out would-be owners and drive prices higher.
However, renting does make sense when property is bubble priced. It is the way to go short house price risk while keeping a roof over your head, and avoiding making a life changing commitment that would cramp future spending and saving.
Caveat emptor
Reply How do you distinguish between an owner occupier buyer, a BTL buyer and a second home buyer? Do you impose a new restriction on the future use of a property by its owner? How long does someone have to live in it as an owner occupier before they can switch its use without an additional tax payment?
August 27, 2013
Evidently the idea has enough attraction to merit questions about practicalities. Owner-occupiers already lodge claims for principal residence to avoid CGT (and used to do so to claim MIRAS as well). A change of purpose to renting out an entire home would trigger the extra tax based on previous purchase price (and thus would be small for homes that had been in owner occupation for long periods): an exemption might be made for postings abroad or to a different part of the country of limited duration, backed by the employer. Council tax, utility bills and the electoral register provide ways to monitor occupation.
August 27, 2013
Using the same June Land Registry data as in my earlier post, and assuming each band is charged on the excess over its lower limit of £125,000 at 1%, 250,000 at 3%, £500,000 at 4%, £1m at 5% and £2m at 7%, in line with your example I calculate that the tax raised under the current and proposed systems would have been:
Price over…….Current………..Proposed…. £m
£125,000………54.0…………….17.6
£250,000……133.0……………..53.6
£500,000……..85.4……………..50.1
£1,000,000…..43.9……………..30.5
£2,000,000…..44.5……………..34.0
Grand total…..360.9…………….185.8
So roughly, it halves the revenues, assuming volumes and prices are unaffected.
August 27, 2013
I’ve got a better idea. Get rid of Stamp Duty entirely and levy VAT at an appropriate rate on new build houses as well as on conversions.
However, it is a good idea to think about efficient taxation, defined as taxation with a good yield, widespread public acceptance and low administration costs. If the country carries on overspending on Health and Welfare, there will be no alternative to raising more tax revenue.
August 28, 2013
Stamp duty should be a progressive levy and the bill should be split 50 -50 between the purchaser and the vendor.
October 4, 2013
Stamp duty is an awful tax that stop people moving to near where they work, stops older people down-sizing, and produces uneven revenues for the government.
Replace it with a 1% annual tax over a threshold of, say £250,000, only incurred after a property changes hands.
An instant vote winner because it would take the heat out of the mansion tax argument.
There would be a big increase in the sales of more expensive houses and much more stable (and higher?) tax revenues.