Stamp Duty: What’s the answer?

Stamp Duty: What’s the answer?
You’d have to have been hiding under a stone not to have heard any stamp duty rumours. Soon after he became PM, Boris Johnson, along with many other promises, vowed to change the rules on this unpopular tax and newspapers have been full of speculation ever since. Anyone contemplating buying a home is on tenterhooks waiting to see if stamp duty will change and, if it does, what that means for the property market?

What is stamp duty?

Believed to have originated in Spain in the seventeenth century, Stamp duty in one form or another has been around ever since. The current British version, Stamp Duty Land Tax, (SDLT) to give it its full name, was brought in in December 2003 as a transfer tax for all land and property transactions in England and Northern Ireland and various chancellors have since tinkered with it. 

In 2010, Chancellor Alistair Darling made two big changes, abolishing stamp duty for all first- time buyers purchasing property under £250,000 and raising the tax from 4% to 5% on properties over £1million. More reforms in 2014 by the then Chancellor George Osborne resulted in a dramatic change to the way that stamp duty was calculated so that rates were only payable on the part of the property within each price band. He also increased rates for the upper levels, from 5% payable on properties over £1M-to 10% for properties costing over £925,001. 

How it works

For example, if you buy a house for £275,000, the Stamp Duty Land Tax you owe is calculated as follows

0% on the first £125,000 = £0
2% on the next £125,000 = £2,500
5% on the final £25,000 = £1,250
Total SDLT = £3,750

Purchase price          Stamp duty rate
£125,000-£250,000     2%
£250,000-£925,000     5%
£925,001-£1.5M         10%
£1.5M +                       12%

Transactions and revenue down

There has since been a lot of criticism of Osborne’s reforms, and The Daily Telegraph even launched a campaign to slash stamp duty as it calculated that income from the tax dropped dramatically as less people decided to move thanks to the steeper tax at the upper levels of the market. It estimated that the reforms had cost the wider economy round £1billion thanks to a fall in the number of transactions and the fallout is still being seen today. 

More tax for second home owners

In 2015 the chancellor decided that anyone buying a second property would pay an extra 3% on top of the rates above. The 2017 Budget changed the rules again for first time buyers, so that they would pay nothing on homes costing up to £300,000, and 5% on anything worth more than that up to £500,000. First timers purchasing anything over £500,000 would pay the full stamp duty rates.

Should sellers not buyers pay the tax?  

Recent newspaper reports suggested that the current Chancellor Sajid Javid could change the tax radically to make sellers not buyers pay the tax. In an interview with The Times, he suggested that he might consider this option, adding: “I’m looking at various options. I’m a low-tax guy. I want to see simpler taxes.” Shortly after there was a quick back track with Javid tweeting that he had been mis-quoted: “More speculation about stamp duty this morning. To be clear, I never said to The Times I was planning to put it on sellers, and I wouldn’t support that. I know that we need bold measures on housing – but this isn’t one of them.”

Agents call reforms ‘a dog’s breakfast’

‘Estate agent to the rich and famous’ Trevor Abrahmsohn of estate agency Glentree has sold some of London’s priciest homes and he also believes that sharing stamp duty between buyers and sellers could be fairer. He calls reforms to stamp duty ‘another example of policy-making-by-dog-breakfast’ which he says now cost the Treasury ‘a shocking figure of at least £1billion per year’ and warns that cracks in the property market are showing: “Turnover of properties is down by 60% and the whole industry, including construction, is screeching to a halt. None of this is helping us navigate our way through the post-Brexit era, nor building homes for the vulnerable. Lest we forget, there is an intrinsic link between the residential property market, retail spending and economic growth.”

And many believe that the tax is unfair. Finance director of lettings and sales agents Benham and Reeves, Vidhur Mehra describes stamp duty as ‘a tax penalty disproportionately aimed at London’. “Despite representing approximately just 1.3% of England’s landmass, the capital is responsible for one-third of all property taxes by way of stamp duty,” explains Mehra: “Stamp duty is not only an outdated, archaic practice but a tax on aspiration, choking the upwardly mobile who happen to live where many of the best jobs and transport infrastructure are provided.”

Buyers may be waiting to see if any reforms could save them some cash but Lucian Cook, director of research at estate agency Savills, isn’t optimistic: “The cost of reform and the political backdrop means it is too early for homeowners to be counting their chickens when it comes to the future of stamp duty.”

by Ginetta Vedrickas Property Journalist
Discover more moving home articles on Safestore’s blog where you’ll find a range of topics; from buying your first property, where to invest, when is the best time to move and packing tips.  Or, if you require storage to free up space we have a variety of self storage facilities located in over 100 locations nationwide – find your nearest store for a quote today.

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