There are many examples of hyperbole in uk property news stories, but none more bandied about than the ‘sweeping’ or ‘grand’ reforms of stamp duty that were outlined in the Autumn Statement, the last before the general election. So what exactly do these reforms mean for the man on the street? Are they really so ‘sweeping’ or ‘grand’?
Impact of the new system
The surprising truth is that the talk of how impactful these changes are is, for once, not overstated. The fact of the matter is that for 98% of house buyers, stamp duty will be less than it was under the old system.
The new system:
Buyers of houses below the threshold of £125,000 will not have to pay any stamp duty at all. Between £125,000 and £250,000 the rate will be 2%, rising to 5% for purchases of between £250,000 and £925,000. From £925,000 to £1.5M the stamp duty rises to 10%, and above £1.5M the rate is 12%.
Benefits of the new stamp duty system:
First of all, the new system is said to be fairer: it is a graduated system much like that used to calculate income tax, and gets rid of the distortion to the market created by having huge jumps up from one band to the next.
This new system is designed to help those at the lower end of the system and first time buyers to buy a house in an age when it is difficult to even raise a deposit. The lack of stamp duty on purchases under £125K will go some way towards helping those buyers, and thereby reducing the unfairness within the current housing market.
This new system also reflects the dramatic change in house prices since the last system was established, and it is said that it will stop uncertainty at the top end of the market after discussion of Labour’s proposed ‘Mansion Tax’ unsettled the top-tier property business.
Criticism of new stamp duty system
Many have said that George Osborne was simply spiking Labour’s guns, with this helping hand to ordinary middle class families and swingeing cuts to the super-rich, and that this is just a cynical pre-election pandering to the electorate. These policies have been attacked from both sides of the fence. On one side are the rich, who are annoyed by the huge extra payments they have to make in stamp duty in order to fund, in effect, the cuts to stamp duty further down the tree. This also goes against the core conservative and free-market values of a lot of the Conservative party, who believe in the sort of ‘trickle down’ economics that, arguably, have just succeeded in making the rich richer and the poor poorer.
On the other side of the fence, while they welcome the help for first time buyers and the bottom end of the property market, many feel that the stamp duty tax on the super-rich is not enough. Those in favour of further redistribution of wealth, and equality, feel that tax on the obscenely wealthy should be higher across the board, and not linked just to property. The fact is that due to the crazy inflation of house prices in London and other economic centres, even £2.5 million will no longer buy a property as large as one might imagine. Sometimes, it will buy no more than a one or two bedroom flat.
Other critics have stated that this stamp duty reform will boost the market, and could cause an unsustainable rise in house prices. This would in fact have the opposite effect than that intended for ordinary buyers across the country. George Osborne has denied these claims.
Wherever your political allegiances lie, it is clear that stamp duty reform will have a big impact on house buyers.