Stamp duty holiday: Expert discusses impact on housing market
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The £125,000 entry level for paying this punitive levy has been frozen now for 16 years. Freezing the threshold adds £1,100 to the cost of a £250,000 property, new figures show, and even more for pricier properties. It’s yet another stealth tax hike designed to fool us.
Anger has focused around the National Insurance hike, and the income tax, inheritance and capital gains tax freeze, but the stamp duty burden is soaring. Between April 2021 and this February, HM Revenue & Customs raised a staggering £16.9 billion from this levy on property buyers, up £6.1 billion in a year.
That is more than three times the £5.5 billion HMRC raised from inheritance tax over the same period, yet IHT triggers much more resentment.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said HMRC enjoyed “bumper” stamp duty receipts over the last year even though the stamp duty holiday was only phased out in September 30, 2021.
“It was boosted by the so-called ‘race for space’ as people looked to move out of cities in favour of larger properties with gardens, which kept the property market red hot until the end of the year.”
Stamp duty receipts were also boosted by the 14.3 percent increase in house prices over the last year, with the average property jumping a staggering £33,000 to £265,312 in March, according to Nationwide.
There is another reason why stamp duty is proving so lucrative. The £125,000 threshold for paying it has been frozen since 2006.
If it had increased with inflation, it would be more than £67,000 higher at £192,450 today.
Christine Cairns, personal tax expert at PwC UK, said somebody buying a £250,000 property pays an extra £1,100 as a result. “This saving would be higher for properties worth more than £250,000, where stamp duty rates are higher.”
First-time buyers are exempt on the first £300,000, but this rate is also frozen, so is gradually worth less as house prices rise.
Stamp duty as charged at 2 percent on property values between £125,001 and £250,000, then steadily rises until it hits 12 percent on the portion of any sale above £1.5 million.
Buy-to-let investors and second homeowners pay a surcharge of 3 percent, while overseas residents pay another 2 percent.
Stamp duty is a tax on mobility, punishing those who have to move to find work, and bumping up already high removal costs.
It also deters people from moving up the property ladder, said Michael Zucker of estate agency Jeremy Leaf & Co. “Whereas it used to be commonplace to move to a larger house when necessary, homeowners are more likely to stay put and build an extension or convert the roof space.”
The expense also deters older people from downsizing to a smaller property, as they will have to pay stamp duty on the new purchase, eating into money generated from the sale.
This cuts the supply of larger properties, hitting families searching for more living space and driving prices even higher, Zucker said.
Many in the property industry have called for older downsizers to be exempt stamp duty on their purchase. Tomer Aboody, director of property lender MT Finance, said this would increase housing market activity. “It would also keep a lid on prices, as there would be a better balance between supply and demand.”
As we saw during the stamp duty holiday, scrapping the tax could dramatically increase sales activity. Whether it would cut prices is another question. With property in short supply, vendors might simply ramp up asking prices to compensate.
With the Government so short of cash, any reform looks a long way off, which is bad news for both homebuyers and vendors.
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