Negotiation, Negotiation, Negotiation

UK Property Investment news and comments from Mark Harrison of YourPropertyExpert.com

Bye Bye Stamp Duty? Oh, wait a moment…

Posted by markharrison on August 5, 2008

Well, the front page of “The London Paper” this evening ought to win a prize for something, if not actually good journalism.

The headline read: “BROWN POSTED TO SCRAP STAMP DUTY”, and the article pretty much gave no more detail, except it managed to use fewer CAPITAL LETTERS.

The BBC, as ever, was somewhat more balanced. They reported things somewhat differently:

  • Gordon Brown is actually still on holiday, so it’s Alastair Darling, the current Chancellor, who made the, well non-announcement.
  • The announcement was actually that nothing had been ruled out. It seems more likely that there will be a temporary delay in collecting SDLT (Stamp Duty – Land Tax), giving people more time to pay, rather than a suspension of it.

The tax is, by the way, one of my pet bugbears – it’s what’s called a “slab tax” rather than a progressive tax.

In a progressive tax, like income tax, you have multiple rates, and you pay each rate on a proportion of your earnings. So, on the tax return I’m just going through (2007-2008):

  • I pay nothing on the first £5,225
  • I pay 10% on the next £2,230
  • I pay 22% on the next £32,369
  • I pay 40% on the rest [OK, it’s more complex, because some of my income is capital gains rather than “income”, but the principle stands.]

By comparison, SDLT is paid on the sale price of the property, and applies to the full amount. There are some exemptions for “disadvantaged areas”, but in most of the UK, residential property goes:

  • £0 – £125,000 – 0%
  • Over £125,000 – £250,000 – 1%
  • Over £250,000 – £500,000 – 3%
  • Over £500,000 – 4%

The downside of this is that there is a tremendous incentive to make properties appear just UNDER the threshold, because the full tax applies to the whole lot.

  • A property sold for £250,000.00 pays 1% – £2,500 in SDLT
  • A property sold for £250,000.01 pays 3% – £7,500 in SDLT

Now, even in this property “crash”, £250,000 buys a semi-detatched 3-bedroom house, not a mansion, and detatched 3-beds are still (just) going for over the limit. That’s a lot of tax differential for not wanting to share a wall. While I live in a relatively expensive county (West Sussex), I live in a relatively cheap town in the county (Crawley), albeit at the “big end” of Crawley (Maidenbower.) Further into London, prices get much higher.

So, Alastair, how about making SDLT fairer – make it apply like income tax – that buyers pay 1% on the bit of sale price between £125,000 and £250,000 and 3% on only the bit above (up to £500,000)… not the whole lot?

3 Responses to “Bye Bye Stamp Duty? Oh, wait a moment…”

  1. david said

    And while he is at it, scrap the duty entirely because the only way people pay it is out of the funny mortgage money they use to buy the property. And that means they pay for it at lenders’ interest rates over years, and that is counter to the second principle of social justice, that of trying to get people out of a debt hole and not further into it.

  2. Tax is hard.

    On the one hand, we want social services (and I, for one, would far rather live in a country where we pay more tax to give everyone a health service than, say, the USA.)

    However, these services need paying for – and the only two ways are “tax” (ie – we pay) or “debt” (ie – our kids pay.)

    When you look at tax, there’s a whole mix – do we keep income taxes low, so people can afford to work… but then make up the shortfall in things like SDLT.

    Personally, I’d keep the SDLT, but make it progressive rather than slab… and if that means a higher rate on, say, £1m+ properties, so be it.

  3. sme said

    I see today that the new figure is set at 175,000.
    As you quite rightly say that figure will perhaps buy a semi in parts of the UK, but not far off first time buyers market.
    This tax was introduced as a wealth tax on Britains most costly homes and as such should be set at at least 400,000.

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