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Calls for housing services tax to replace stamp duty

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A think tank is calling for stamp duty to be scrapped and a new housing services tax to be introduced instead of council tax, levied as a proportion of the property’s value. 

Buyers currently pay 1 per cent stamp duty on properties worth more than £125,000, 3 per cent above £250,000 and 4 per cent above £500,000. For homes worth more than £1m, buyers pay 5 per cent and since March 2012 they 7 per cent on properties worth £2m or more.

Earlier this week, the Taxpayers’ Alliance published research which claimed £4bn has been collected through stamp duty in 2012/13 and called for the tax to be abolished.

Writing in the Guardian, National Institute for Economic and Social Research director Jonathan Portes says simply abolishing it would leave a “huge hole” in public finances. He says stamp duty is a “terrible tax” which distorts house prices and should be replaced with a revamped version of council tax, originally proposed by the Institute for Fiscal Studies.

In its comprehensive review of the tax system known as the Mirlees Review, the IFS proposes a “housing services tax” which is levied as a proportion of up-to-date values with no cap and no discount for unoccupied or single-occupancy properties.

Portes says: “This would have lots of advantages. It would be both more progressive and more economically efficient than either the existing council tax or stamp duty. By abolishing the regressive banding system, which means that people in cheap houses pay far more than those in expensive ones relative to the value of their properties, it would achieve most of the objectives of the proposed “mansion tax”, without the complications, as well as removing the current perverse incentives to buy property and then not live in it.”

But, he warns, the change might not be popular with those pressing for the tax to be abolished or reduced.

He says: “So if a housing services tax is such a wonderful idea, who would lose from it? Precisely those vested interests who would gain most from the Taxpayers’ Alliance […] proposal for abolition or sharp reductions in stamp duty – well-off homeowners, their children whose inheritances might be eroded, and rich foreigners buying expensive property in London.”

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  1. Sounds like a worse idea than stamp duty. Stamp duty taxes people who need to move- a housing tax would tax people who just want to stay put. I’m sure there are better options.

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