Stamp duty: millions more being dragged into tax trap
“Boom in property prices means that a quarter of homebuyers are paying stamp duty of 3 per cent or more, up from just one in 10 in 2003”
The number of households being forced to pay higher rates of stamp duty has more than doubled in the past decade, according to new figures.The boom in property prices means that a quarter of homebuyers are paying stamp duty of 3 per cent or more, up from just one in 10 in 2003.
The disclosure coincided with government statistics that showed families paid a total of £3.4 billion in inheritance taxes last year, the most since the onset of the financial crisis.
The stamp duty system has been criticised for creating a “cliff edge” that deters people from buying homes because they have to pay more tax.
The Office for Budget Responsibility predicted that house prices will rise by 8.5 per cent this year and by 7.8 per cent next year. As a result, the Treasury will continue to benefit from a huge increase in stamp duty receipts.
Conservative MPs and financial experts on Thursday night warned that the middle class was being burdened with taxes that were originally designed to affect only the richest people.
It will compound pressure on the Conservatives to increase the threshold at which people start paying inheritance tax and to consider scrapping stamp duty on all homes worth less than £500,000.
The rising number of households dragged into a higher tax band means the Government is collecting near-record levels of stamp duty from home owners despite far fewer homes changing hands.
Stamp duty starts at 1 per cent on sales between £125,000 and £250,000, rising to 3 per cent on sales of up to £500,000 and 4 per cent on homes costing up to £1 million.
Homes worth more than £250,000 accounted for 25 per cent of all property sales in 2013, up from 10 per cent in 2003. The tax burden is falling increasingly on southern regions where even modest family homes have been pushed into higher tax brackets.
The value of a typical home in London is £492,000, according to figures from the Office for National Statistics, compared with a UK average of £262,000. Lucian Cook of Savills, the property group that produced the research, said: “Stamp duty bands have not increased in line with house prices, which means we now have an aggressive form of stealth-taxation.
“The problem is more acute in London and the South East, due to greater house price growth. The addition of new tax bands in 2011 and 2012 has substantially increased stamp duty receipts, making the prime housing markets something of a cash cow for the Treasury.”
Nationwide, Britain’s biggest building society, on Thursday released figures which showed that stamp duty revenues on all properties totalled £10.2 billion in the year to June, compared with the record high of £10.6 billion in the year to October 2007.
Nationwide said that buyers in London contributed about 42 per cent of the total stamp duty paid in 2013, despite sales accounting for only 15 per cent of all property transactions.
In the North West, where house prices are below the national average, buyers paid just 3 per cent of total stamp duty, even though the region accounted for one in 10 transactions.
In the 12 months to October 2007 there were 1.68 million property sales nationwide, while 1.19 million homes were sold in the year to June 2014.
Figures published by the Office for National Statistics also showed that the Treasury made £3.4 billion in death duties last year as more households were dragged into the inheritance tax net due to rising property prices.
The takings represented a six-year high and an increase from £3.1 billion the previous year.
MPs have said that George Osborne, the Chancellor, should follow up the Government’s pension reforms announced in the Budget by making a manifesto commitment to raise the inheritance tax threshold. The Tories pledged to raise the threshold from £325,000 to £1 million at the last election but the policy was abandoned after opposition by the Liberal Democrats.
Inheritance tax is levied at a rate of 40 per cent on the value of an estate above the threshold. Economists, tax experts and Tory MPs have called for reform of the tax, warning that it predominantly hits middle-class families.
David Cameron pledged in March to raise the inheritance tax threshold at the next election to ensure that it only targets the rich.
Conservative MPs will in September challenge the Government over stamp duty levels by holding a back-bench debate on the issue in Parliament.
Dominic Raab, the Tory MP for Esher and Walton, said: “Stamp duty remains the greediest of Labour’s stealth taxes. It may be a cash-cow for Treasury bean-counters, but it warps the housing market and knocks aspirational Britons for six.
“The 3 per cent rate was introduced to target the rich, but the static threshold means it now wallops average homebuyers — and it’s particularly punitive in London and the South East.” Anne Main, the Tory MP for St Albans, said: “It is unfair and unjust that young people are being so disproportionately affected by stamp duty in certain parts of the country. We have sucked a whole load of people into stamp duty that never used to be in it.”
She added: “When there are so many inequalities [in the stamp duty system] we must look at it. Taxes should be fair and proportionate. I am beginning to feel this one isn’t.”
Mark Field, the Tory MP for the Cities of London and Westminster, said the levy had effectively become a “mansion tax”.
“Stamp duty makes the property market stickier. It’s becoming a tax on London and the South East. It can’t be desirable because we need a globally mobile workforce. The redistributive element of a mansion tax is already being achieved through stamp duty.”
Source: The Telegraph