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A tax on aspiration

Gregor Watt reports that Budget measures have brought dismay across the housing industry

Part of the Budget’s package of measures to offset the reduction in the top rate of income tax included several measures to increase the amount of revenue generated from the owners of the most expensive properties.

In his Budget speech last week, Chancellor George Osborne said he was determined to be seen to stamp out avoidance of stamp duty through the purchase of topend residential property through businesses.

Osborne said: “Let me make this absolutely clear to people. If you buy a property in Britain that is used for residential purposes, then we will expect stamp duty to be paid. That is the clear intention of Parliament.”

In addition to the new 15 per cent rate of stamp duty and the prospect of an annual charge on properties bought and owned by corporations, the Chancellor also announced the introduction of the new 7 per cent rate of stamp duty for properties worth £2m or more which applies to all purchases made after March 22, this year.

The Budget predicts these changes will raise an additional £1.5bn by 2014 for the Treasury but there are doubts this goal will be achieved.

E.surv chartered surveyors, director Richard Sexton says: “Our research, drawn from analysis of loan approvals on £2m properties, suggests £1.5bn is an overly optimistic estimate of the revenue the scheme will raise. The real amount may not even be half that. Based on sales over the last two years, a 7 per cent rate would only raise around £700m and even a 20 per cent increase in £2m transactions over the next year would still see the amount raised struggle to hit the £1bn mark.”

Zoopla.co.uk business development director Nicholas Leeming also says the new rate of stamp duty will struggle to raise the targeted amount and says he is concerned the new tax will stall the one relatively active area of the market.

He says: “The introduction of a penal 7 per cent stamp duty rate on properties purchased at over £2m is flawed and misguided in our view. The expectation that this new rate will generate £1.5bn is at odds with our research which shows that if this 7 per cent rate had been in effect over the last two years, it would have only generated £634m in revenue.

“This move will not only affect the wealthy but is also likely to have an adverse impact on the entire property market. We are likely see a slump in activity from buyers at the top level and this will have a knock-on effect all the way down the chain.”

With London and the South-east accounting for around four in five sales of properties worth over £2m, this geographic area will be disproportionately hit by the new stamp duty rates but Sexton says he does not expect this to noticeable affect the housing market in these areas.

He says: “It will not be a policy that hits the housing market with any real force. It is a way to raise revenue from property without rocking the foundations of the market. An extra £40,000 of stamp duty tax is an annoying inconvenience for wealthier buyers rather than a serious repellent. The effect on the overall housing market will be nominal given how few people the tax effects.Less than 1 per cent of all house purchase approvals in 2011 were for properties worth over £2m, so the effects are unlikely to be widely felt and will not feed down into the lower echelons of the housing market.”

If it is hard to be very concerned about the finances of someone able to buy a property worth £2m or more, many in the mortgage and housing industries have been critical of the Chancellor’s lack of action at the other end of the property market.

National Association of Estate Agents president Wendy Evans-Scott says: “Not only has the Chancellor failed to offer any real help to lower and middle-income homeowners and first-time buyers but the stamp duty holiday for FTBs is also coming to an end.

“Instead of using the Budget as an opportunity for whole-scale reform of property taxation, the Chancellor has chosen to further tax property sales with the introduction of a 7 per cent rate at the upper end of the market.

“The Budget was a chance for George Osborne to support the green shoots of recovery but there is very little to support the UK’s fragile property market. To get the market moving again, homeowners across the whole market need the confidence to sell their homes and first time buyers need encouragement. This Budget provided neither.”

Evans-Scott says she particularly wanted to see reform of the current system of stamp duty that sees buyers’ stamp duty bills shoot up sharply after they pass the different thresholds.

She says: “The Chancellor left the unfair slab structure of stamp duty untouched, despite a strong case for reform. Stamp duty distorts the housing market, and hits first-time buyers the hardest. It is a tax on aspiration.”

David Salusbury, Chairman, National Landlords Association chairman David Salusbury also says the Chancellor has been looking at the wrong end of the housing market.

He says: “Calls for a comprehensive review of stamp duty continue to go unheeded. This could have been a good opportunity to stimulate more investment and encourage growth in the residential property market.”

Leeming says the Government has not renewed the stamp duty holiday for first time buyers as it does not believe it is cost-effective. But he says by forgoing a small amount of revenue at the bottom of the market the Government would make much more significant amounts at the top of the market, without having to further increase the rate of stamp duty at the top end of the market.

He says: “Stamp duty for first-time buyers, in revenue terms, is the fiscal equivalent of a mosquito on a rhino’s back. The Government believes the stamp duty holiday has not been significant in encouraging first-time buyers into the property market and that is why they are scrapping it but there are a number of other factors which have prevented the surge of buyers the Government was originally hoping for.

“Over the last two years, the taxman has missed out on just £650m from first-time buyers who have bought within the £250,000 threshold but the 5 per cent rate on properties over £1m, introduced at the last Budget, has pretty well covered this shortfall, netting nearly £550m in just 12 months. Given the importance of first-time buyers in providing the first link in the property chain, the Government should be doing everything possible not to deter these buyers and allow them to energise the rest of the market.

“This will lead to higher levels of activity further up the property ladder and, in turn, higher tax revenues to bolster the Treasury’s coffers.”

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Comments

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  1. As a first time buyer I am glad stamp duty is back and I am equally glad the stamp duty loop holes are being closed.

    What first time buyers want is lower prices not more ways to keep up up record debt. Time to end low interest rates, QE and Newbuy keeping property prices artificially high.

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