The first well-documented proposal from Shadow Chancellor George Osborne is designed to help first-time buyers on to the property ladder by abolishing stamp duty on property purchases up to £250,000. According to the Tories, this would result in 200,000 fewer people paying stamp duty.
Abolishing stamp duty for FTBs is something SPF has not been alone in campaigning for over the past few years as house prices have rocketed, pricing out those on low incomes. But while the Government has merely tweaked with thresholds, doing little of real significance, the Tory plan is more drastic and more welcome.
There are downsides. There will be arguments over the definition of exactly who is an FTB. What if you owned a property some time ago, then sold it and rented for a while before trying to buy another? What if you are an FTB but your partner has owned a property before? Will you be penalised for that or will you both benefit from not having to pay stamp dutyThe other big downside is the £250,000 threshold, which does not mean much for those trying to buy in London. FTBs in London won’t benefit from a £250,000 stamp duty threshold. According to Nationwide’s recently released quarterly regional house price index, the average house price in London is above £300,000 and the price of the typical FTB property has edged above £260,000.
There is also a question mark over whether the proposals go far enough. Stamp duty is one of the unfairest taxes there is because it is not tiered like most other taxes. It is high time the entire stamp duty system was dramatically revamped. Instead of charging someone with a £600,000 property 4 per cent on the full amount, there should be no charge on the first £125,000, then 1 per cent on the next £125,000, 4 per cent on anything above that, that is, in this instance the outstanding £350,000, which would be much more equitable. There would then be scope to introduce a higher rate of 5 per cent on properties costing more than say £700,000 as long as this was only payable on anything above £700,000 – not the full amount.
The other proposal that emerged from the Tory conference to the delight of delegates was the decision to slash inheritance tax bills by raising the threshold from £300,000 to £1m. This would lift nine million out of the IHT bracket, say the Tories. Certainly, the death tax is highly unpopular and unfair. Why should we be taxed twice on our money?
IHT is a great revenue spinner for the Government. In 1997, the Treasury raised £1.68bn from IHT but by last year this had rocketed to £3.6bn on the back of rising house prices. It is projected to rise to £4bn next year.
The problem, which is largely Gordon Brown’s making as Chancellor, is that the IHT threshold has not increased in line with house prices. Instead of IHT being a tax on the rich, it is now a tax on the average person. What’s more, the very rich will always have the best tax advice so they will be able to avoid paying the duty anyway, whereas those who can least afford it will be hit hardest.
Raising the threshold to £1m is extremely welcome. The housing market is beginning to take on a beleaguered air as the effects of the credit crunch bite. Times will undoubtedly be tougher for lenders, brokers and borrowers alike next year so anything that eases the tax burden is likely to be extremely welcome.
Mark Harris is managing director of Savills Private Finance