Accountants call for end to jump in stamp duty
GEORGE Osborne should ease the burden of buying a house by reducing the huge jumps in stamp duty at each price threshold in next week’s Autumn Statement, leading tax adviser Baker Tilly urged yesterday.
The tax adviser hopes that Osborne will follow Scotland’s lead in changing the rates at which stamp duty kicks in.
Currently there is a cliff edge effect, where a home buyer crossing a stamp duty threshold by a single penny can be suddenly hit with a bill of several thousands of pounds more.
Baker Tilly hopes the chancellor will consider moving to a marginal system where, like under income tax, the higher rate is only charged on the money spent above the threshold.
An alternative, which would be cheaper for the exchequer, would be to introduce more, smaller increments. That could involve the tax kicking in on homes of £100,000 then rising by 0.5 percentage points for each £50,000.
“The current system can be capricious,” said Baker Tilly’s Lakshmi Narain. “This proposal would particularly benefit those at the middle to low end of the market.”
The Scottish government is looking at raising the threshold at which stamp duty kicks in from £125,000 to £180,000, as well as reducing the rate paid by those at the bottom end of the market and increasing it for those at the top end.
Pressure has increased on the chancellor to offer some concession for buyers who are faced with rising prices plus a large tax bill.
Baker Tilly analysis shows that if the tax threshold had risen in line with house prices from 1997, the one per cent rate would start at £382,000, not the £125,000 currently.
The Treasury declined to comment on the content of the Autumn Statement yesterday.
WHY TAX EXPERTS DISLIKE STAMP DUTY
The current system of stamp duty imposes taxes on the whole sale price of a property at the same rate.
As a result if the purchase price rises one penny above a tax threshold, thousands of pounds more tax must be paid on the sale.
The one per cent band kicks in at £125,000. Below that, a buyer pays no stamp duty. One penny above it, they pay £1,250.
A three per cent threshold kicks in at £250,000, four per cent at £500,000, five per cent at £1m, seven per cent at £2m. At each of these thresholds buyers face a cliff edge payment.
So someone buying a house at just over £2m faces a jump of £40,000 in extra tax.
As a result the market is distorted, with very few properties for sale at a level just above each threshold.
One option round this would be to charge the tax only on the value above the threshold, as with income tax.
Another would be to use lots of small increments close together.
In London the problem is particularly stark as prices have risen so quickly. Very few properties come in below £125,000, leaving buyers with a big tax bill on top of their deposits.