Time for Stamp Duty Tax reform? We at Northwood think so!

March 19, 2014

Today the Chancellor, George Osborne, will present his 2014 Budget to the country.

There are many speculations around how the property market will be affected and which issues will be targeted by the 2014 Budget, but strangely enough, Stamp Duty is not one of them!

The current regime of Stamp Duty of 1% tax on transactions up to £250K and 3% on transactions over £250K has been in place since 2000.  Incredibly if the 3% threshold had risen in line with house prices, it should now be in the region of £800K!

With a developing trend of rising property prices it is surely time for a review?

Recent research by Zoopla has shown that there is a “dead zone” in property transactions after £250K.

Zoopla claim that, since April 2012, 37,266 properties have been under-priced by sellers to avoid costly jumps in stamp duty bands and also attract buyers.

The report by the property website shows static bands in which stamp duty tax is charged have cost each of these sellers almost £7,000.

The total amount cut from property prices to keep homes in a lower stamp duty threshold is more than £260 million since April 2012, the report concluded.

Meanwhile, the average asking prices of property coming to market hit new record high of £255,962 in February, putting the average property into a higher rate of stamp duty taxation, although any buyer would obviously try and negotiate a property down below the threshold.

This means that the 3% Stamp Duty band, more than ever, is like a “choker” around property prices, causing restrictions and dampening sales in this zone. Its influence does not start to diminish until close to a £300K asking price.

Northwood M.D. Eric Walker proposes a possible solution:

“The huge jumps in costs to buyers due to stamp duty thresholds is a major issue. For example a property that should be worth £260,000 will never sell for more than £250,000 as this extra £10,000 in the selling price will cost a buyer £7,800 in tax – that’s £5,300 more than if they paid £250k.

That means an extra £10k on the purchase prices actually costs £15,300.

Either the sale price drops, or the vendor asks a much higher figure so that the threshold is of little relevance.

These stamp duty bands create barriers and prevent a proper graduation of prices where values jump from £250k to say £280k and there is often a void in between. The answer would be to only pay the higher rate of tax on the amount above the threshold rather than the whole purchase price. In the example above, a purchase price of £260,000 would cost the buyer  £2500 at the 1% duty level and an additional £300 at the 3% level making a realistic total of £2800.

I believe the Treasury would benefit as volumes would increase and the market would stabilize, free up more lending from the risk adverse, reduce down-valuations at the thresholds and level out these artificial price bands.

It would take pressure off those saving and reduce the amount they need to borrow. It would also reduce risk to lenders as buyers, especially for First Time Buyers in the South East who wouldn’t have to stretch quite as much. Even those that have enough savings, job security and income to facilitate a loan find they are exposed to near CIA like interrogation simply to get a Mortgage in Principle.

It’s time to revisit this issue especially at a time when many are predicting a bubble and reporting First Time Buyer’s have been priced out of the market”.

The continued growth in the UK residential sales market means that Northwood offices are busier than ever doing valuations and completing sales successfully on a wide range of apartments, flats and family homes.

You can find out more about our sales side >>> here.

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