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Should the Government scrap mortgage stamp duty?

New director of the Institute for Fiscal Studies Paul Johnson says stamp duty on housing “gums up” the market and should be scrapped.

Speaking to Money Marketing, Johnson says the tax on house buys discourages people from moving. He says: “I do not think there should be stamp duty on housing transactions. It creates significant problems and gums up the housing market.

“The tax increases significantly at particular points so there are discontinuities in the amount of tax people pay. More generally, it increases the cost of selling a house, creating quite a big incentive not to move.”

Johnson says if stamp duty was removed, thought would have to be given to how to rep-lace the yield it brings in.

London & Country head of communications David Hollingworth says: “Clearly, it is an additional cost for anyone buying a home. It has got to put some people off moving.

“As it is a Government tax, removing it would mean the money would have to come from elsewhere and I do not think that would be simple but certainly an overhaul of the current system is long overdue.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Funny how stamp duty wasn’t ‘gumming up the market’ when punters thought prices would keep booming forever.

    What’s ‘gumming up the market’ is the government propping up bubble prices. What’s 1% tax when prices have ballooned 200% in 10 years on the back of a phoney credit boom?

  2. Agreed, SDLT is a bad tax.

    The obvious way of replacing it is to add several new Council Tax bands at the top, all the way up to Band Z for £1m mansions which would be paying about £10,000 a year or something, i.e. seven times as much as an average house which is only worth a seventh as much.

  3. Back in 1997 we ,as an electorate, passively stood by as Gordon Brown introduced changes to the rates of stamp duty. These changes were disingenuously sold to us as a means to prevent house price inflation. I watched in dismay as we swallowed the lie that raising stamp duty would control the market.
    Sure, this might have had an effect if there were stricter controls on borrowing, but this wasn’t the case (and Brown knew it). All that raising stamp duty achieved, was to fuel house price inflation and to promote even higher levels of private debt. The additional cost of moving home was effectively added to the sale price of the existing home whilst banks carelessly doled out even bigger mortgages to hapless buyers in order to absorb the extra cost.
    It was a big lie. Just as the much so as the well used whopper about adding 5p to a packet of cigarettes to stop people smoking. Nobody ever stopped their smoking habit for 5p, and as a nation we never stopped our borrowing habit for the sake of a few thousand pounds (so long as the bank would lend it to us).
    If you doubt my assertion then just review house price inflation statistics for the period. House prices continued to soar in 1997 and gathered pace beyond then. The conspicuously obvious way to have damped down house price inflation was through tighter controls on borrowing or increase in interest rates.
    For Gordon Brown, restricting borrowing would have slowed growth and left him unpopular with the majority of loyal voters. Worse still, he would have suffered lower tax revenues. Raising interest rates was the responsibility of the MPC and since inflation was measured by CPI (as introduced and stage managed by Gordon), there were limited grounds to increase interest rates. However, he knew that raising stamp duty (even though ineffective) would bring in billions and be swallowed easily by an apathetic electorate. This was Brilliant, Brown could increase tax for the benefit of us all (or that’s what we would be told). There was no way that Brown was going to stop the property gravy train from rolling. Some people even applauded this tax increase on the so called wealthiest in society. A lesson to all those people now is that having to borrow five times your income to buy a house does not make you wealthy!
    An alternative means of controlling soaring house prices and rampant property speculation would have been to scrap stamp duty and introduce CGT on the sale of property. This ,in my opinion, would have been honest, fair, more transparent and more socially responsible. But screw all of that. Brown wanted all your lovely votes and all your lovely tax. The runaway miracle economy wasn’t going to be slowed down, (not on his watch). Controlling house prices whilst the electorate were in full “property gold rush” mode, and the taxes were pouring in, was never on his agenda.

    Moving forward to 2008 when property prices began to fall:

    If the increased rates of stamp duty in 1997 were legitimised as a means to curb house price inflation, then why weren’t they removed when prices began to drop?

    The simple answer is that Brown was lying to us.
    It’s also a question which will also test the integrity of our current coalition government. It’s time that the wrong was righted.

    Stamp duty on the whole is an abhorrent tax affecting thousands of hard working people on all income scales. It is profoundly unfair as it burdens the buyer (who has made no profit) and ignores the potential significant profit enjoyed by the seller.
    It could also be construed to be regionally discriminatory. Simply living in an area where house prices are high, does not by default make you wealthier or more able to pay the higher tax.
    In cases where you find yourself in a profession where wages are the same throughout the country, quite the opposite applies. So a nurse in Newcastle on the same grade and pay as a nurse in the South East may be significantly wealthier. This is by virtue of potentially lower house prices in the North of England. So the Nurse working and living in the South East will typically pay a far higher percentage of his or her wage to buy an equivalent property to a Nurse in Newcastle. Further to this, it is likely that the property bought in the South East will incur higher stamp duty. That has nothing to do with fairness! That is about two people on the same income paying different rates of stamp duty influenced by average house prices in their regional locality. This example shows, in effect, that stamp duty can be levied at a higher rate on the poorer of the two people. Nothing to do with a tax on the wealthiest in society and nothing to do with Cameron’s fair society.

    It’s time for a serious rethink on stamp duty and a chance to replace it with a tax which would discourage speculative property bubbles in the future.

  4. How much does he get paid? Does he really believe a very small percentage tax gums-up the market? The market is gummed-up at the bottom end with no FTBs to feed this Ponzi system, where there is little or no tax. Yet another excuse homed-in on, instead of airing the reality. HOUSE PRICES ARE DOUBLE WHAT THEY ARE WORTH. We need interest rates up to drive the free market. When is this coalition going to mange properly|?

  5. The UK economy depends greatly on the housing market. Currently the ammount of transactions is minimal. Scrapping or reducing stamp duty will cost the government very little in monetary terms but will be hugely popular with the majority of the middle classes. I expect something will be done to reduce stamp duty on properties up to 350k. Usually if you get the housing market moving the economy begins to pick up.

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