Updated 3 December 2014: In today’s Autumn Statement, The Chancellor George Osborne announced the abolition of the existing Stamp Duty “slab” structure, to be replaced by a system similar to income tax, just as Nationwide had campaigned for.
Nationwide has been campaigning for Stamp Duty reform for more than a decade so we are delighted with The Chancellor’s announcement today. This means for virtually everyone buying a home with Nationwide mortgage, their tax bill will be lower and easier to predict.
Stamp Duty was originally a tax levied on those buying more expensive properties. These days it’s paid by the vast majority of home movers and is among the most significant upfront costs, because whilst house prices have increased, the thresholds at which Stamp Duty is charged haven’t.
The last time there were adjustments to any of the thresholds was 2006 and since then average house prices have increased by 18%. Now the average UK house price is £189,000* and any purchase over £125,000 incurs a 1% Stamp Duty bill. So anyone buying a home at the average UK price of almost £190,000 currently faces a Stamp Duty bill approaching £2,000, on top of necessary deposit and moving costs.
The bill increases threefold for properties costing more than £250,000, and when you consider that the average house price in London is now over £400,000, this means a Stamp Duty bill exceeding £12,000. In fact over 98% of people in the Capital now have to pay the Duty.
Because of this tax burden it is easy to see why some people could be discouraged from either buying their first home or moving
Because of this tax burden it is easy to see why some people could be discouraged from either buying their first home or moving up the ladder to a bigger home, freeing up properties for first time buyers. In the interests of fairness I’ve asked the Chancellor to consider increasing current thresholds to reflect at least the 18% house price inflation and to continue to keep pace with future growth.
However, while this would mean fewer people have to pay Stamp Duty or at least pay a lower amount, it’s only really a first step toward updating this cumbersome tax. Even if the levels at which the tax is due are higher, the current slab structure would still penalise those buyers who cross a threshold by even £1. This is because they are charged Stamp Duty on the full value of the transaction, not just on the amount over the threshold. I can’t think of any other taxation system that works in this way.
Stamp Duty really needs a complete overhaul, to be replaced by a fairer, marginal system similar to Income Tax where homebuyers would be charged on just the amount over each threshold, such as the system that Scotland is introducing in April.
Such a system would not only be fairer, it would better support and stimulate activity in the slowing housing market, and particularly to help first time buyers, families who need a bigger home and the elderly wanting to downsize.
* November House Price Index