We can report that Chancellor George Osborne was considering a change to stamp duty rates in his Budget last week. Osborne was looking into a new stamp duty band of 2 per cent from £250,000 to £300,000 but decided against it at the final moment.
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 pay 7 per cent on properties worth £2m or more.
Stamp duty applies on the full price of the property so 3 per cent rate at £250,000 would cost £7,500 whereas a rate at £249,999 would cost £2,500.
With the leap from 1 per cent to 3 per cent at £250,000 there is huge distortions on the market.
There are a crowded number of homes below £250,000 and hardly any just above the threshold.
There are almost no homes priced between £250,000 and £275,000 because of the extra £5,000 cost that has to be handed to the Government.
We believe stamp duty needs major reform to end the slab structure and become an easier tax to pay.
In London it is a tax on first-time buyers and can cost almost as much as the deposit needed.
It is a major friction and obstacle in the housing market and we believe it could change.
But in the meantime it would be great to see a new tax band at 2 per cent to stop the bunching effect.
We believe it makes no sense for borrowers to see such a huge leap from 1 per cent to 3 per cent.
In the strange world of taxation lowering the tax rate could also increase revenues by pushing more people over the barrier.
A 2 per cent level should see more people prepared to buy homes just above the £250,000 threshold.
S
tamp duty is becoming ever more important to the Government and revenue is set to double in the next four years as house prices rocket.
The latest Nationwide house price index puts the average price of a UK home at £177,846.
The Office for Budget responsibility predicts stamp duty receipts to rise 90 per cent over the next four years from £9.5bn in 2013-14 to £18.1bn in 2018-19.
This year alone stamp duty revenues have increased 37 per cent as property sales rise, house prices increase and mortgage lending flows more easily.
This is a huge source of income from the Government and helps explains why there is reticence to tinker with rates or overhaul the system.
The OBR says the UK is highly reliant on rising house prices to boost stamp duty income, giving it a vested interest in a house price boom.
Tax works in mysterious ways and any changes could have unusual effects as opposed to the reasonably proven certainty of the current system.
London property accounts for 40 per cent of all stamp duty receipts and one borough, Kensington and Chelsea makes up a massive 14 per cent. It shows how skewed property is to London and how reliant Government is on wealthy homes being purchases.
