View more on these topics

Time is right for stamp duty reform

Mortgage advisers agree on the need for a progressive stamp duty levy but remain divided over how best to reform the system overall.

Brokers say escalating house prices mean the time is right to consider reforming stamp duty away from the current slab system to one based on progressive rates.

Based on data from LSL Property Services, the Land Registry and Nationwide, first-time buyer advice website last week published a report which claimed property prices for first-time buyers rose by 11.4 per cent in the year to November. This is compared with growth of 4.9 per cent within the main property market. As a result, it forecasts an extra 31,000 first-time buyers will breach the one per cent stamp duty £125,000 threshold in 2014.

Average prices for first-time buyers within the East & West Midlands are forecast to rise above the stamp duty threshold within the next 12 months, while Yorkshire & Humberside properties are set to follow in 2015.

The problem for first-time buyers is exacerbated in London, where the average first home price is currently £276,000 – placing buyers within the 3 per cent stamp duty band for properties worth between £250,001 and £500,000. Buyers are then charged stamp duty at 4 per cent for homes between £500,000 and £1m, 5 per cent for homes between £1m and £2m, and 7 per cent on homes over £2m.

Figures from HM Revenue & Customs show that out of the the total £4.7bn stamp duty yield in England, almost half – £2bn – is paid by those living in Greater London.

The Government’s stamp duty holiday scheme, which meant first-time buyers did not have to pay stamp duty on homes worth up to £250,000, ended in March 2012 after two years. At the time the Government claimed it had been ineffective in helping people get onto the housing ladder.

Trinity Financial communications and product manager Aaron Strutt says: “When the stamp duty holiday was in place, it seemed to have the desired effect in that buyers took the opportunity to save themselves a few thousand pounds on their home purchase, but perhaps not to the extent the Government had hoped for.

“When it was announced the holiday was to end as planned, there was a rush of buyers trying to apply – that itself says how people felt about the deal.”

Brokers want stamp duty levied under a progressive structure, which would see the tax incurred at increased rates as property values rise, but with the increased rate from one band to the next only charged on the difference between the two bands.

For example, is someone is buying a property worth £250,000, under a progressive system they would be charged one per cent on £125,000 of the value, and then three per cent on the value of the property between £125,000 and £250,000, rather than the current slab system.

Coreco managing director Andrew Montlake says: “A significant step towards making stamp duty fairer would be to apply the same rules as income tax and make it a progressive tax.

“The current slab structure just does not seem sensible and is adding huge amounts to the cost of purchasing a home for first-time buyers, especially in areas like London where the average price is already above the three per cent threshold.”

John Charcol senior technical manager Ray Boulger agrees a different approach is needed.

Boulger says: “I would certainly say a progressive tax system would be a better way of levying homebuyers. The current slab structure does not seem the most sensible approach and of course there are political implications of changing the rules, but I do not imagine there would be many complaints about a move to a progressive stamp duty.”

Your Mortgage Decisions director Dominik Lipnicki says: “We would massively welcome a more intelligent way of looking at stamp duty.

“Ideas such as placing a capital gains tax on foreign buyers of UK properties and other ways of recouping revenues are very welcome and a progressive tax rate seems a more logical way of running the system.”

While advisers agree with such a change, there are a number of options for reform.

Montlake wants an abolition of stamp duty for first-time buyers up to £250,000, but Boulger thinks this would be difficult to implement both due to the loss of revenue as well as political discontent.

Boulger says: “I am not sure the Government could afford to lose this kind of revenue given the state of the deficit and politically, there would be a lot of factions in the country that would take issue with such a move.

“What needs to be looked at are the current thresholds, which were set up by Gordon Brown in 1997. Taking fiscal drag into account, it does seem inappropriate to have the same thresholds in today’s markets as we had 16 years ago.

“Property prices are up massively since then, even with the crisis period accounted for, and the tax bands need to reflect this.”

But Lipnicki argues rising house prices and confidence in the housing market in general have resulted in buyers simply factoring stamp duty into the purchase price.

He says: “With house prices rising almost across the UK, albeit at differing rates, people are happy simply to get onto the housing ladder – confident that their asset will appreciate and leave them better off financially.

“WIth the advent of Help to Buy and the return of 95 per cent loan-to-value mortgages in general, people are having to come up with smaller deposits anyway and that makes the stamp duty burden a little easier to manage.”


News and expert analysis straight to your inbox

Sign up


There are 2 comments at the moment, we would love to hear your opinion too.

  1. colin hodgkinson 21st January 2014 at 1:42 pm

    Collecting revenue has to be a major factor however most BTL landlords openly admit to not declaring income. Why not make the solicitor disclose to the revenue that it is a BTL.
    Secondly what about those moving down market, currently they also pay stamp duty and potentially lose 30K of the mortgage but pay stamp, legals and agents fees and the real saving is diminished.

    Stamp duty and revenue collecting needs clear segmentation and not lumped together

  2. The problem with the current system is that there are no thresholds for stamp duty, there are precipices. £149,999 purchase price, stamp duty nil. £150,001, stamp duty £1,500.01.

    It would be fairer to say stamp duty of 1% on the first £250,000 then 3% (or whatever it might be) on the next £250,000 and so on. This would be fairer and avoid silly market distortions.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm