We see that the debate around stamp duty is hotting up with Scottish Government reforms to create a more “progressive” system of stamp duty and make more expensive homes pay more. They seem interested in ending the unpopular “slab” structure where full payment of thousands of pounds is required up front.
The Treasury is consulting on whether to devolve stamp duty raising powers to the Welsh Government. Meanwhile Mayor of London Boris Johnson has long demanded the power to raise and spend stamp duty receipts in the capital.
These changes could lead to regional distortions over stamp duty structures and rates in the coming years.
Some lenders, such as Halifax, have been known to offer mortgages which offer to pay stamp duty for you. Speak to your mortgage broker to consider what your borrowing options may be if it is proving a struggle.
The best way to pay back stamp duty is to find a low deposit mortgage with a cheap monthly repayment and a broker is the best person to scour the market for cheap mortgage rates.
Worst tax
The Institute of Fiscal Studies says stamp duty is “fundamentally flawed” and a case could be made that it is the worst UK tax.
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 7 per cent on properties worth £2m or more.
There is no taper system, meaning if buyers go £1 over the threshold they are charged on the entire property value. It means someone buying a £124,999 property pays no stamp duty but someone buying a £125,000 property pays £1,250.
Naturally this leads to huge distortions and prices clustered around stamp duty bands with buyers unwilling to go over the edge.
It is also incredibly expensive with tens of thousands of pounds often needed just to pay the tax on a property purchase. Someone buying a £2m home will be slapped with a £140,000 tax bill.
For first-time buyers the the cost of stamp duty is another in a long list of hidden bills such as valuation fees, legal costs and lender arrangement fees. All these come separately from the thousands, if not tens of thousands, of pounds needed for a mortgage deposit.
Seller pays
One proposal for a group of 40 Conservative MPs is for the property sellers to pay stamp duty instead of the buyer. This would exclude first-time buyers from paying the duty and allow them to focus on raising the deposit. Sellers also have better cash flow than first-time buyers as they have just sold the property.
It is an interesting proposal and symptomatic of the current debate among policymakers but it also has problems.
Any change in the system would effectively force sellers to pay stamp duty twice, both when they bought the home and now when they sell. Another idea used by Government has been stamp duty holidays which can give huge temporary boost to the housing market.
A holiday for stamp duty in 2011 saw huge increases in demand that immediately tailed off when the holiday ended.
The Government is set against further holidays, claiming there is no overall increase in market activity just buyers bringing forward purchase decisions.
Reforms
Stamp duty is a hated tax which undoubtedly distorts and acts as a barrier to people moving or buying homes. However, it is also a huge source of Government revenue meaning they are reluctant to make changes or risk hitting the public purse.
There is a debate around its future though; how it should be paid, who should charge it and whether it needs to be reformed.
