We are pleased to see more reform of stamp duty in the plans of politicians ahead of the general election.
Labour is promising to abolish stamp duty on homes worth less than £300,000 for the first three years of a Labour Government.
The change would apply only to first-time buyers for starter homes and is intended to help many get on the ladder.
Labour leader Ed Miliband says he wants the stamp duty savings to contribute towards a house deposit.
For someone buying a home worth £300,000 they could save as much as £5,000 in tax from the cut.
Labour has previously proven keen on stamp duty holidays when the previous Government in 2009 introduced cuts for first time buyers.
Housing experts caution against using temporary tax cuts as they cause a bunching effect meaning there are far more purchases during the holiday. When the temporary relief ends there is a sharp decline in house sales.
This type of effect is unhelpful and it is likely that the Labour policy would see a sharp rise in sales towards the end of the three years before falling away shortly after it ends.
But tax cuts are good for the housing market and can help boost the sector. It is not just first-time buyers that will benefit either as more house sales lubricates the entire market.
If first-timers can buy homes more easily than others can sell more easily and everyone on the selling chain can benefit from a smoother market.
Easier sales can also drive up prices. Some also argue that cutting stamp duty will simply be added to the cost of the house.
Reforms:
Last year the Chancellor introduced a major overhaul of the stamp duty system in a radical reform that ended the slab structure.
It means property transaction taxes only apply above ceratin thresholds rather than on the entire property price.
For example, under the old system a 1 per cent stamp duty charge on a £200,000 home would cost £2,000. But under the new system, introduced overnight on December 5th last year, it would only apply above the threshold of £125,000, meaning a cost of just £750.
The new system benefits 97% of households but, as with any tax reform, there are some very big losers in the high end property sector.
Homes worth more than £2m now pay a 12 per cent stamp duty charge above that threshold. A £5m home would around £400,000 in stamp duty – an incredible level of taxation.
This has the effect of lubricating most of the market but potentially stifling the top end sector, especially in London.
It comes hot on the heels of Labour proposals for a so-called mansion tax, which is a 1 per cent annual charge on homes worth more than £2m.
Stamp duty has been under immense change in the last few years and it is important to stay on top of how it affects you and the housing market.
it can be a big factor when purchasing a house, especially at a highe level so always make sure you factor the cost into your plans.
