Is The Stamp Duty System Creating A Boom and A Bust Simultaneously And Raising Less Money?

 

Is The Stamp Duty System Creating A Boom and A Bust Simultaneously And Raising Less Money?

In the Autumn Statement of 2014 the coalition government, at the time, were absolutely correct to get rid of the ‘slab-sided’ Stamp Duty Calculator in favour of a more progressive version in order to solve the sales of properties at around each of the margins.

For instance, properties were not sold between £2million and £2.3million since there was a great advantage to keep the price below £2million threshold as the incremental cost beyond this was a great deterrent for the purchaser. (example: the tax on a property bought under the old system at £1,950,000 was £97,500 where as at £2,050,000 it was £143,000 an increase in £46,000 for an extra £100,000 in the purchase price,which reflects a 46% tax at the margin).

We now have a Tax system that ranges from 0% to 12%, but at the £200,000 to £600,000 region there is a considerable advantage to a buyer in Tax savings verses the old system (example: purchase of a £300,000 property under the old system £9,000 and under the new system £5,000 a saving of £4000 to the buyer and a loss of Tax to the government).  So, this sector of the market is going ‘berserk’ with many more buyers than sellers creating an acute shortage of stock available at any one time.

What happens today in this sector, particularly in London, is that the moment a property appears on the market, in this price range, it will be ‘snapped up’ by a ‘canny’ buyer who has access to an easily available mortgage. As a result property prices are rising by between 5-7%. The buyers who struggle to get a fast mortgage offer will, of course, be left behind and be homeless.

For the first time buyers this makes the task of getting onto the property ladder all the more difficult as prices rise and puts pressure on the Help-to-Buy/Right-to-Buy government initiatives that are limited in scope anyway.

At the other end of the scale Stamp Duty, at 12%, is ‘grinding’ the middle to upper markets to a halt. Sales transactions are down by at least 50% and in some areas even more so.  Prices could be easing by 10-15% exacerbated by the evident lack of International buyers especially from Russia and China, where UK Visa applications are down by 80%, which reflects the local problems of falling Stock Markets in each of these countries.

Since SDLT is a transaction based Tax I’m not sure if this is such a clever move by the coalition government, at the time, as this reflects a lower ‘Tax take’ whilst at the same time more transactions at the lower end of the scale also earns less Tax for the government.

This reflects the ‘double whammy’ effect on Stamp Duty receipts whilst ‘stoking up’ housing demand at the wrong end of the scale, where there is a finite supply, and exacerbates the chronic shortage of private housing where we are building a third of the required number of new homes in the UK today.

The Prime Minister has promised to build 200,000 new homes this year but, to be fair, the question needs to be asked where are these new homes going to be built and how? This is all the more difficult to believe in the light of the, as yet, unchanged and labyrinthine Planning procedure and the difficulty of obtaining mortgages at the lower end of the market as new regulations bite.

There is a two-tier property market at the moment and the worst of all worlds for the government and consumer alike. I’m not sure if the Chancellor is  ‘joining the dots’ and ‘reading the message’ and maybe the Autumn Statement in four weeks time will be an opportunity to right some wrongs ….what say you George?

Written by Trevor Abrahmsohn.
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