The mortgage industry has welcomed the Conservative Party’s proposals to abolish stamp duty for first-time buyers for homes under £250,000 but say the plans need to be refined further.
Conservative Shadow Chancellor George Osborne told delegates at its party conference last week that it will take 200,000 people a year out of stamp duty altogether by abolishing stamp duty for anyone who buys their first home for under £250,000.
He said “Our message to the family working long hours, saving every spare pound to afford their first home is this – your dream is our dream, too. Your aspiration is our aspiration. We will get you out of tax and into your home.”
London & Country mortgage specialist James Cotton says the Tories’ pledge is a decent one as stamp duty is a big burden on first-time buyers.
He says: “It sounds like a decent pledge but the problem is that stamp duty is often used as a political tool by parties. It is quite an easy win, especially for the opposition parties but, of course, it would be a huge help to a lot of people.”
Although brokers believe the proposal would be a step in the right direction, many point out that stamp duty still needs more sweeping changes to its structure.
John Charcol senior technical manager Ray Boulger says that although the broad basis is spot-on, the detail of the proposals is not. He points out that Osborne has not yet defined what it would term as a first-time buyer.
He says: “What is the situation where a couple are buying together for the first time and one of them has previously owned a property but the other hasn’t? Will they count as first-time buyers? If not is the one who is a first-time buyer being discriminated against?”
Nationwide non-retail executive director Matthew Wyles also questions how the Government will make sure that only the deserving get the benefit of this tax break.
He says: “The beauty of stamp duty is its simplicity – no complex rules and the conveyancer or solicitor takes care of the collection. What duty of care will the conveyancer bear? What enquiries will be required to demonstrate that the applicant is a “qualifying” first-time buyer?”
The Council of Mortgage Lenders defines a firsttime buyer as anyone who is buying but not simultaneously selling another property and they estimate that 20 per cent of people they classify as first-time buyers in their statistics are not firsttime buyers at all.
Some examples of those included in this 20 per cent are – a couple splitting up, where one stays in the previous joint home and the other buys another property, people who have previously owned a property but are now buying again after a period of renting, ex-pats returning to the UK who have not retained a property in the UK while they were abroad and people retaining their existing residential property as a buy to let and buying a new home.
Wyles believes a simpler and more radical approach to this problem of defining who is a first-time buyer would be to transfer the liability for stamp duty to the vendor which would exempt all first-time buyers in one fell swoop without a material cost to the Exchequer.
He adds: “Transitional arrangements would be necessary but ultimately the shift of the burden to the shoulders of those who have already enjoyed the fruits of homeownership would be much fairer.”
Boulger says his ideal solution would be to abolish stamp duty completely on the purchase of residential property but not on commercial property.
But he says in the real world, stamp duty land tax needs to be completely revamped to make it fairer for everyone. “Part of this process needs to reflect the fact that the thresholds for the higher 3 per cent and 4 per cent rates haven’t changed since Gordon Brown introduced them over 10 years ago although the rates have increased.”
Boulger suggests that three key changes are needed. This would include adopting the slab system in the same way that income tax works. This would mean that each tax rate would apply just to the portion of the purchase price within stated bands. Second, he suggests it should reflect house price inflation over the last ten yers and, last, Boulger believes the Government should introduce a new band for the most expensive properties.
In Osborne’s speech, he pointed out that under Labour, over half of firsttime buyers pay stamp duty. He said that under the Conservatives it will be less than one in 10. Exempting first-time buyers from stamp duty for purchases of up to £250,000 will cost £400m.
Osborne added that the Tory proposal will abolish stamp duty for nine in 10 FTBs. He said the exemption of first-time buyers will save 200,000 first-time buyers a year an average of £2,000 each.
The Tories have said they will pay for this loss of income by charging a flat annual levy of around £25,000 for those who register for non-domicile status. Osborne explained that the introduction of this offshore levy covers the cost of abolishing stamp duty for first time buyers.
Cotton says he expects Labour to come out soon with further changes to stamp duty tax in response to the Tory proposals.