The failure of successive Chancellors failure to adjust the stamp duty system – coupled with recent increases in house price – will lead to billions in extra tax in coming years; and that is according to the Chancellor’s own figures published in the Autumn Statement. Of course, stamp duty is applied to the whole purchase price, rather than being a marginal system like income tax, and so the jump in duty paid is extreme as properties move up into higher brackets.
According to the Office of National Statistics (ONS), London property purchases will see the most dramatic increases. But other groups are will also be hit. ONS data puts the average price paid on a first-time purchase at £184,000, meaning a tax of £1,840 (the 1% bracket applies from £125,000 to £250,000). Although the predicted increase in the average price to £217,465 by 2016 would not push the transaction into a higher band, the duty would rise by £335 or 18%. Similarly, using ONS data, the average property in England will rise in price from £255,000 today to £301,400 by 2016. That would mean stamp duty payable lifting from £7,650 to £9,040, an increase of £1,390.
In notes published alongside his Autumn Statement, the Chancellor set out how much the Exchequer hopes to raise in future years from this combination of rising prices and transaction numbers – and the fact that more properties would drift into higher brackets. Stamp duty collections, at £6.9bn for 2012/13, would rise to £12.5bn by 2015/16 and almost £17bn by 2018/19 – a near three-fold increase.
It is no wonder therefore that the Royal Institution of Chartered Surveyors and accountants alike are urging the Chancellor of the Exchequer to act now to reform the stamp duty land tax regime. Accountancy body, ACCA, proposes a new system under which the regime is staged in the same way as the current income tax structure, so a 1% tax is paid on the value between £125,000 and £250,000 and 3% paid on the value between £250,001 and £500,000, rather than the current cliff edge approach.
Therefore, just as an income of £50,000 would be taxed at 20% for the first £32,010, then 40% between £32,011 – £50,000, a house priced at £275,000 would create a stamp duty liability of £2,000; 1% charged on the £125,001 – £250,000 bracket and 3% charged on the £250,001 – £275,000 gap.
ACCA head of taxation Chas Roy-Chowdhury says: “The cliff-edge nature of stamp duty has always been hard to justify, especially at the lower end of the market where young people are taking their first steps to get on the housing ladder. With house prices on the rise and lenders loosening the manacles on mortgage lending, this will become an even bigger obstacle for homebuyers. On a property worth £500,000 the total stamp duty today, under the current system would be £15,000. Under our proposals it would be £8,500 – saving the buyer up to £6,500.
The Royal Institution of Chartered Surveyors last week proposed the same changes to the stamp duty regime.
The next Budget will be a very important one for the Chancellor and one which will shape the economy in the run-up to the general election. The property sector is causing much concern, as is the current stamp duty system which is both out-of-date and distorts the market by taxing buyers disproportionately high amounts should they go just one pound over the pre-set thresholds.
We will see if George Osborne shares those concerns.