What should Stamp Duty amounts be if they were linked to house prices?

publication date: Apr 14, 2011
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

What should Stamp Duty amounts be if they were linked to house prices?

The Halifax has released some fascinating data on stamp duty thresholds. The Halifax states that “Higher stamp duty thresholds - £250,000 and £500,000 – have been unchanged since their introduction in July 1997 despite a 140% increase in house prices over the period to January 2011”. Yet “If the higher stamp duty thresholds had been increased in line with house price inflation since July 1997, the £250,000 threshold would now be £600,000 and the £500,000 threshold would stand at £1,200,000.”

This means that five times as many buyers are paying stamp duty than in the past decade.  “Halifax calculates that the proportion of residential property sales worth over £250,000 and, therefore, attracting a minimum stamp duty rate of 3% stood at 26% in 2010; over five times the percentage of sales over £250,000 in 2000 (5%). There are an estimated five million homes in the UK that are now valued above the £250,000 stamp duty threshold compared with 875,000 in 2000.”

This is one area where the government has substantially increased property tax revenues to £6.7 billion in 2007-8 although this has now halved in line with the drop in sales since the credit crunch.

Halifax’s research suggests that the average stamp duty bill has risen by 88% over the past decade, but according to property expert Kate Faulkner, MD of Designs on Property this isn’t a huge surprise as so have property prices (despite the credit crunch falls). Kate says “It is important to remember that although property owners are paying more stamp duty, they have also benefited from huge windfalls in ‘free income’ from the capital gains in their main property allowing many to retire early, buy another property abroad, or just spend the extra money!

What is shocking says Kate is the huge amount of stamp duty monies generated by London compared to other areas around the country. Kate firmly believes “all housing policies, rules and regulations for London should be dealt with separately to the rest of the UK as it’s an international city as well as our capital.”

Halifax state that “The average stamp duty paid accounts for 19% of a Londoner's average annual full-time earnings. In contrast, the average house price in the North East remains below the threshold for the lowest stamp duty band.”

First Time Buyer Stamp Duty

What is good is the change for First time buyers in the stamp duty paid for properties up to £250,000 as according to the study, “An additional four in ten (38%) first-time buyers (FTBs) are exempt from paying stamp duty due to the temporary increase in the starting threshold from £125,000 to £250,000. Overall, 95% of first-time buyer purchases are now below the £250,000 threshold.” Suggesting that this policy is one that should be made permanent.

Million Pound Properties for Sale 

Even though the stamp duty for £1mn+ homes is going up from 4-5% from the new 2011 tax year, this will only affect around 1.0% of residential property sales. As usual, most of these will be in London – where there are just under 5% of homes in this bracket.

Home sales above the higher Stamp Duty thresholds
The southern regions of England have seen the biggest increases in the proportion of buyers paying stamp duty at the higher rates. Since 2000, London saw the largest rise in the proportion of sales above the 3% threshold of £250,000 from 17% in 2000 to 58% in 2010; an increase of 41 percentage points.

Almost three quarters (74%) of local authority districts (LADs) saw at least a five-fold increase in the proportion of home sales attracting a minimum of 3% stamp duty between 2000 and 2010.

Eight out of the ten LADs with the biggest rises in home sales above the 3% threshold over the past decade are in London with the other two in southern England. Outside southern England, Richmondshire in Yorkshire and Rutland in the East Midlands saw the largest increases, with both recording a 33 percentage point rise.

Kensington and Chelsea (96%) and Westminster (92%) are the two LADs with the highest percentage of sales above the 3% stamp duty threshold.

Average Stamp Duty paid
Over the past ten years, the stamp duty payable on the average house sale has more than doubled in over half (51%) of all LADs. Brighton and Hove has seen the biggest increase (576%), followed by South Hams (572%) and Epping Forest (548%), reflecting the shift in the average homebuyer from paying 1% in 2000 to now paying 3% in these areas.

At the other end of the scale, the average house price in 16% of all LADs is not subject to stamp duty; down from 20% in 2000.

For the full report and tables on Stamp Duty, *read the full report

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