Money Blog: Stamp Duty Must Be Reformed, Not Suspended
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Home » Money Blog » House Hunters » Stamp Duty Must Be Reformed, Not Suspended
Stamp Duty Must Be Reformed, Not Suspended
By Nic Cicutti
Aug 6, 12:53 PM
You can tell when the media hyenas are on a feeding frenzy: the Prime Minister is under fire now just for his alleged economic failures but even for whether he looks relaxed in his holiday pictures compared to his Boden-wearing Tory opponent, David Cameron.
It’s almost enough to make me feel sorry for Gordon Brown: the idea that any of the hacks criticising him are themselves models of sartorial elegance is a huge joke. At the end of the day, what’s going to do for Brown won’t be – or at least, shouldn’t be – whether his blazer and slacks look good but his handling of the economy.
Unfortunately, the omens don’t look good – and the latest news that the Chancellor, Alistair Darling, is considering a temporary suspension of stamp duty is yet another sign of muddled government thinking.
The “leak”, which appeared in this morning’s Sun newspaper, was not denied by Darling when he appeared on Radio Four’s Today programme. The Chancellor said he would be making an announcement in relation to the housing market some time in the autumn.
This is madness and for two reasons: the first is that stamp duty needs wholesale reform, not a temporary sticking plaster placed on it for a limited period of time.
The second reason is that by delaying any announcement Darling now risks achieving precisely what a suspension of stamp duty is designed to address: a stalled housing market. After all, if you think that by holding out for another few months you may save several thousand pounds in stamp duty, why bother buying a home now?
Worse, if the public is encouraged to believe that a temporary halt to stamp duty is likely at some stage and it doesn’t then materialise, the anger generated by disappointed homebuyers (and anxious sellers) will be volcanic.
But to go back to the first point, the real need is to reform stamp duty, not suspend it.
Why? Well, because suspending stamp duty on sales up to £250,000 was tried for eight or nine months in 1991 and it did little to boost a stagnant housing market at the time. Prices continued to fall at least until the end of 2003.
Sure, the impact on stamp duty is much greater nowadays, with someone buying a property priced over £250,000 having to find a whopping £7,500, so saving that kind of money, or using it towards a deposit, definitely offers an incentive to buy.
Yet difficulties in obtaining credit are at least half of the problem for would-be buyers: without more and cheaper mortgages from lenders, how many will be able to enter the market anyway?
The real task for the government now is to say loudly that it intends to reform stamp duty, by raising the lowest tier on which no tax is payable from £125,000 to £250,000.
It should then do away with its “slab” approach to the tax, which charges up the amount payable on the full purchase price, not jus the element over the threshold. So, for example, you pay £2,499 on a property priced at £249,999 and £7,500 on one costing £250,001.
It should also say when these reforms will take place and also, in order to avoid forcing buyers to hang on, to add that this reform will apply to any completion of contracts after 1st August, with buyers able to get a refund in any stamp duty paid after that date.
Without this kind of decisive approach, the feeding frenzy will continue and instead of the kind of reforms we need to the property market, we will be left discussing Gordon Brown’s taste in summer jackets. Or lack of it.
User Comments
grant 8 August 2008, 14:12
property in the south east may be more expensive, but what caused this differential compared to other parts of the uk? answer greed, and hopes of making a quick killing when it is time to sell. a house is where you live, not a road to a fast buck! i’m also hearing lots of gripes about ‘the nanny state’, people i’m told prefer market forces. i’m afraid these high costs are as a result of market forces caused by insatiable greed, and it’s these same market forces resposible for the 11% drop in the value of houses across the board! so quit moaning and get on with life. oh bye the way, we live in a 6 bed house with a double garage and drive, 2 en-suite rooms, a study, a breakfast room a nice garden and lots, lots more besides! and you should see the view, devine. cost £50k less than my semi in the south east 3 years ago; some north/south divide, sorry! gordon brown WAS the best chancellor we have ever had by far; whatch you don’t get what you wish for!
Andrew Bowtell 8 August 2008, 12:53
I certainly agree that the way stamp duty is charged (1% on 249,999, but 3% on 250,001) is absurd. It is also discriminatory, in that it falls much more heavily on people living in certain areas of the UK, e.g. the south-east of England, where houses prices are very high. It also discourages mobility of employment.
If one lives in one part of SE England (owning say a house worth £500,000 – and one does not get much for that money in SE England) and would like to move to a new job say 70 miles away, to buy a similar house near ones new employment would cost £20,000 in stamp duty alone (in addition to all the other costs of moving)! Many people in that situation will either travel 140 miles by car each day to avoid the cost of moving or decide not to change employment. That is bad for the environment and the economy. But what does that matter to a government that gets few votes from people with £500,000 houses in the SE of England?
Robert 8 August 2008, 11:38
Stamp duty land tax is also unfair because it should be charged to the seller rather than to the buyer . It is the seller who normally has gained a substantial capital increase in the value of the house being sold. First time buyers have to take the full impact of the tax on the chin at a time when they are already struggling in a top-heavy market to gain a foothold on the housing ladder. Why were things arranged in this way? Presumably because the location of the buyer is far easier for the taxman to determine than that of the seller. But virtually all sales are handled by legal professionals. Why not simply make it a requirement that the seller’s solicitor must pay the sdlt from the sale proceeds?
And isn’t the tax system there to equalise things a bit?
Peter 8 August 2008, 11:24
Thanks for nothing Darling. You’ve just stalled the sale of my house on the day we were set to exchange contracts. It had taken 18 months to get to this point. A few careless words from you and it’s all over. Who can blame the buyer who wants to see if he can save £9000 if you decide to scrap stamp duty? Whatever you are going to do, do it now! Stop dithering and start leading this country out of the economic mess it now finds itself in. This is your watch. Get governing!
charles 8 August 2008, 09:14
Again they cannot make thier minds up so it puts every one in a strange place shall I sell or not the whole country is in a quadery with the houseing market flat it will only put more and more on the dole less tax and NI coming in for them to waste so what are they going to do just like my Darling shall I or shant I do it we need strong leader ship not this dithering lot we have got GIVE US AN ELECTION
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