Two industry bodies have heaped pressure on the government to overhaul “unfair, ineffective and outdated” stamp duty, claiming it constricts the property market.
The Royal Institute of Chartered Surveyors (RICS) says the government should scrap the tax altogether for first time buyers and pensioners looking to trade down the property ladder.
For all other homeowners, RICS wants to see the tax thresholds raised so that no stamp duty is paid on the first £150,000 of a property's price. Under its proposals, homes worth between this level and £250,000 will be taxed at 2.5%, while homes valued at £500,000 or more will be subject to a 5% tax rate.
The government currently charges 1% on properties worth £125,000 or more, rising to 3% at £250,000, and 5% at £500,000.
A fairer application of the thresholdsImportantly, RICS wants stamp duty to be applied in the same manner as income tax, whereby you pay the higher rate only on the amount that exceeds the threshold.
Under the current system, the thresholds are absolute, creating a ridiculous situation whereby someone purchasing a property for exactly £250,000 will pay £2,500 tax, but a buyer who pays £250,001 will pay £7,500 tax – three times as much.
RICS says this rigid rule distorts the value of homes around the thresholds, making it extremely difficult for such homeowners to buy or sell.
Under fire from all anglesRICS aren’t the only ones to stick the boot into the tax. The Association of Home Information Pack Providers (AHIPP) claims stamp duty is making it unaffordable for many families to move homes and is calling for it to be scrapped on all homes valued at less than £200,000.
“Stamp duty is a tax for which the payer sees no direct or indirect benefit,” says AHIPP director general Mike Ockenden. “It is time for the government to recognise that this tax is a key factor in affordability for home buyers, particularly those trying to enter into home ownership for the first time.
“We challenge the government to take the necessary action to revitalise the housing market which is such a key part of the troubled UK economy.”
So will the government listen?The problem of course is that the government’s coffers aren't exactly overflowing at the moment, so it will be hesitant to tinker with such a lucrative revenue stream – analysts say Labour rakes in around £6.5 billion every year from stamp duty.
However, there is growing evidence that the government’s hand may be forced not by critics, but by market factors.
Simpler times that came beforeIn recent years, the government has ignored calls for a cut in stamp duty because it saw no need to do so.
As reviled as the tax was publicly, it wasn’t actually stopping people buying and selling homes, thanks to a booming property market and an almost unlimited supply of cheap mortgages.
So the government simply sat back and did nothing, and as house prices increased, so did its stamp duty profits – up nearly 800% over the last 10 years.
Rock and a hard placeNow, with
mortgage lending costs soaring and sky-high inflation squeezing household budgets, the idea of paying upwards of £7,500 tax for an average house is proving to be a very large stumbling block for many buyers.
The resultant lack of movement in the property market will be of great concern to the government. According to AHIPP, Labour stands to lose around £1.5 billion in stamp duty revenue this year alone as the number of homes changing hands plummets.
This leaves them with a difficult decision to make: Do they keep trying to bleed the maximum amount of tax from a dwindling market, or do they make the tax more equitable in the hopes it will revive the number of homes changing hands, thus benefiting all parties?
Previous track record suggests it will be the former, but there’s no doubting the fact that ignoring the calls for change is getting harder all the time.
