Buying Property Phil & Kirstie's Stamp Duty Plans

Date Published:

25/06/2008

Conservative Party Policy
George Osborne promised to slash inheritance tax and stamp duty in a keynote speech at the Economic Competitiveness debate.

A Conservative government would raise the threshold of inheritance tax to £1 million and that of stamp duty to £250,000, in what George Osborne described as 'the most important reform of capital taxes for a generation.'

Extract From Liberal Democrats' Vince Cable Policy Before The Changes Pre-Budget Review

5.3 Residential Stamp Duty

5.3.1 The current system of stamp duty on residential properties is based on a slab structure - that is, duty is assessed on the total cost of the property at rates which rise in bands of value. The rates are 0 per cent for properties valued at under £125,000; one per cent between £125k and £250; 3 per cent between £250k and £500k; and four per cent above £500k.

5.3.2 This structure causes two problems. First, significant amounts of duty are increasingly being incurred by first time buyers, thus making it even harder for them to enter the market. Second, the slab structure causes distortions in price around the band limits.

5.3.3 These problems can be reduced by moving from a slab structure to a system under which duty is paid on the marginal rate above the threshold for each band.

5.3.4 We propose that a marginal system should be introduced which combines a modest increase in the zero rate band with a graduated rate payable in bands thereafter. The aim would be to reduce the amount payable for all purchasers up to £500k. The exact band widths and rates to be included in the General Election Manifesto will be set at the time, when the revenue costs of various options post-election are clearer than they are today.

Government Quote From The Labour Party
A Treasury spokesperson said:

'Half of all first time homebuyers and about two fifths of all homebuyers will pay no Stamp Duty this year. What's more, as a result of threshold increases made by the government, four out of five homebuyers pay stamp duty at one per cent or pay none at all.

The History Of Stamp Duty
* Stamp duty is a tax which is hundreds of years old and one of the oldest taxes levied.

* Stamp duty land tax (SDLT), a tax on land transactions was introduced by the 2003 Finance Act.

* In 2005 the first stamp duty threshold was raised from 60,000 to 120,000.

* In 2006 the first stamp duty threshold was raised from 120,000 to 125,000.

* Alistair Darling, in the 2008, budget changed it so stamp duty on shared ownership homes will not be required until people own 80 per cent of their home.

'In the 2005 Budget the then Chancellor doubled the zero-rate threshold to £120,000, taking 430,000 transactions out of stamp duty entirely at that time. Last year, the Chancellor increased the threshold further to £125,000, exempting additional homebuyers from stamp duty.'

For background:

Of the estimated 1.7m homebuyers in 2007 to 2008, the number exempt from Stamp Duty Land Tax (SDLT) is estimated to be around 650,000.

The number estimated to be paying either no Stamp Duty Land Tax or the one per cent rate is estimated to be around 1.3 million, just under four fifths of all homebuyers.

Quote From The Conservative Party
The average first time buyers pays over £1,500 in stamp duty compared to nothing in 1997; we have pledged to raise the stamp duty threshold for first time buyers to £250,000, helping nine out of 10 into home ownership. Not only will more people be able to get a first foot on the property ladder but it will assist a market which is currently stagnating.

Current Rates
Transfers of land and buildings (consideration paid)

Rate
Land in disadvantaged areas – residential
Zero: £0-£150,000
One per cent: Over £150,000-£250,000
Three per cent: Over £250,000-£500,000
Four per cent: Over £500,000

Land in disadvantaged areas - non-residential Zero: £0-£150,000
One per cent: Over £150,000-£250,000
Three per cent: Over £250,000-£500,000
Four per cent: Over £500,000

All other land in the UK – residential Zero: £0-£125,000
One per cent: Over £125,000-£250,000
Three per cent: Over £250,000-£500,000
Four per cent: Over £500,000

All other land in the UK - non-residential Zero: £0-£150,000
One per cent: Over £150,000-£250,000
Three per cent: Over £250,000-£500,000
Four per cent: Over £500,000

NB Disadvantaged Area Relief for non-residential land transactions is not available for non-residential land transactions with an effective date on or after 17 March 2005.

However the relief is preserved for:

* The completion of contracts entered into and substantially performed on or before 16 March 2005

* The completion or substantial performance of other contracts entered into on or before 16 March 2005, provided that there is no variation or assignment of the contract or sub-sale of the property after 16 March 2005 and that the transaction is not in consequence of the exercise after 16 March 2005 of an option or right of pre-emption.

Other General Points From Conversations With Experts – Feelings Not Facts
* The income tax system works the same system as we will be suggesting.

* The current SDLT system is often referred to as the 'slab' structure.

* In today's climate where mortgage companies offer low LTV it can be the 'straw that breaks the camels back' adds 'grit in the wheels' of the mortgage market.

* Stamp duty costs are more important in today's market: before, the stamp duty cost would be swallowed up in a couple of years by the increase in value of the house.

* With marginal buyers, stamp duty could be the difference between buying or not buying.

* There is no economic logic in the 1/3/5 per cent system.

* For many, stamp duty could be the cost of a luxury vehicle.

* Thresholds are often referred to as 'cliff faces'.

* Stamp duty in Ireland was reformed last year and abolished for first time buyers – they do have higher percentages for other buyers though.

* Stamp duty form is long winded for solicitors and leads to higher legal fees.

* It is unlikely it would be abolished totally - it pre-dates any other tax.

* Also it is an easy tax for the government to collect, it collects itself.

* There is distortion in the property market around the threshold points.

* There is an argument to say that there shouldn't be stamp duty at all - necessities aren't normally taxed - food isn't taxed, train fares not taxed and, it could be argued that buying houses shouldn't be taxed either.

* Stamp duty has not moved in line with inflation.

Other opinions on stamp duty are:
* It is no more onerous than estate agents fees, surveys and the current mortgage arrangement fees.

* More important than stamp duty is the ability of people to get mortgages.

* Some think capital gains would be a more appropriate tax.

* Another issue people refer to is mortgage tax relief which no longer happens. * Stamp duty is blown out of proportion - people are obsessed with it.

* The government needs their money and will get less from SDLT this year because of the slowing market.

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