As Scottish ministers finally do away with stamp duty and a consultation begins in Wales to do the same thing, it is high time the Tories also kept to their election promise and made changes to Britain's most-hated tax.
© Alan Aiken
A crisis looms as the average price of property in England and Wales rapidly approaches the £250,000 mark — the point when stamp duty triples from one per cent to three per cent of the purchase price. This increase could see 80,000 people a year falling into this higher tax bracket, facing a huge £7,500 tax bill, rather than a somewhat more affordable £2,500.
It is ironic that it was a Scotsman who first introduced the crippling £250,000 stamp duty tax threshold. Before Gordon Brown took the job as chancellor, stamp duty was set at a flat rate of one per cent for all properties sold over £60,000. In 1997, however, Brown introduced the notion of stepped stamp duty tax bands, bringing in a new threshold of 1.5 per cent at £250,001. He then raised the charge by half of one per cent every year until 2000, when it reached three per cent. It has stuck at that level ever since.
In the apparent interest of "fair taxation" — but more as a desperate attempt to plug the public finance deficit — recent years have brought additional thresholds at £500,000, £1 million and £2 million. No move, though, has been made to raise the level at which the three per cent tax hit kicks in, despite average house prices rising over threefold from £72,900 to £239,296 since 1997.
Stamp duty was a tax introduced to generate revenue from the wealthiest of buyers. According to Nationwide, a house worth £250,000 in 1997 would be equivalent to £716,000 today. One could say it was the "mansion tax" of the Nineties but what equated to riches then is no longer the case in 2013.
Having dragged more and more ordinary buyers into its grips, stamp duty will soon be an "everyman" tax: just another way for the Treasury to dip into our pockets.
Now first-time buyers are being frozen out
Across the country, 26 per cent of buyers now pay more than £250,000 for their property and in London it is 62 per cent. For people who have already paid income tax, stumping up another £5,000 of stamp duty for their family home is not only a double whammy but equivalent to another 10 per cent on top of their deposit.
Transactions have dropped 32 per cent since 1997 and the fall-out, should the band not be reassessed, could be even more devastating. Not surprisingly, potential buyers are reluctant to pay three per cent stamp duty on properties above £250,000. Not only is this a barrier to trading up but owners of properties above £250,000 are then unable to sell, or only at a reduced price, which means they cannot trade up either. This freezes the market and prevents first-time buyers from getting a look-in.
As "stamp duty Doomsday" beckons, and with average prices within a hair's breadth of £250,000, the present Chancellor must move quickly to reassess the tax banding. While the Government's much-trumpeted Help to Buy stimulus package has begun to unlock the market, this can only be good news if the one per cent stamp duty trigger is also raised.
Re-evaluating the threshold will give buyers a much-needed boost, allowing home owners to trade up and first-time buyers to begin climbing the ladder. Even the Treasury can make some money. For every purchase that does not happen because of the £250,000 barrier, the Government earns three per cent of nothing. For every property sale that would go through, due to a kinder stamp duty regime, the Government would earn one per cent of something: a win-win situation which would make a real difference.
A government keen to trumpet "fair taxation" should question how this tax can possibly bring fairness to a nation of aspiring homeowners, and take heed of the TaxPayers' Alliance Stamp Out Stamp Duty campaign.
Naomi Heaton is chief executive of London Central Portfolio, residential experts and fund managers (londoncentralportfolio.com).