Axe stamp duty for properties under £500,000, urge MPs

5th September 2014

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MPs have urged the government to help families and axe stamp duty on homes under £500,000.

 

Anne Main, Conservative MP for St Albans said the current system, which charges 1% stamp duty on homes between £125,001 and £250,000 and 3% on property between £250,001 and £500,000, is hitting first-time buyers and families wanting to move up the housing ladder. Older people wishing to downsize are also being hit.

 

In a House of Commons debate Main said stamp duty was initially levied on wealthy families but now the government is using it as a ‘cash cow’.

 

‘Taxes that I believe were originally designed for the wealthy home buyer now bring in so much money to the Treasury…I think it’s being seen as an untouchable cash cow – too big, too lucrative to tinker with,’ she said.

 

‘Collection of stamp duty in its current forms I believe enshrines inequality, denies fair access to home ownership and taxes aspiration.’

 

Main went on to say the tax is unfair as it disproportionately affects those in the South where house prices are higher, and does not take into account whether buyers can actually afford to pay the tax.

 

‘It’s discriminatory – unfairly targeting certain areas of the country regardless of ability to pay and that cannot be fair. It’s the ordinary families being clobbered the most by this tax.’

 

Dominic Raab, MP for Esher and Walton in Surrey, has long called for the abolition of stamp duty for properties under £500,000 and said if stamp duty had increased in line with inflation since its introduction in 2000 it would only apply to homes worth £1.3 million now.

 

‘Stamp duty has morphed into a vindictive stealth tax on aspirational Britain,’ he said. ‘It distorts the housing market. It is warping labour mobility. It is penalising savers. And it wallops those on relatively low and middle incomes and I think the case for reform is now overwhelming.

 

However, the government is likely to resist any change to stamp duty. Treasury Minister David Gauke said even if axing stamp duty for homes under £500,000 stimulated the housing market it would be unlikely to make up the £4.2 billion lost in tax.

 

‘That is a very substantial sum of money and, at a time where we have to be very careful with public finances, we should bear that in mind.’

 

7 thoughts on “Axe stamp duty for properties under £500,000, urge MPs”

  1. Noo 2 Economics says:

    These arguments for the abolition of stamp duty could be equally applied to VAT, which I would agree with.

    1. george the first says:

      Please explain how the abolition of stamp duty, which penalises those of us in the south east, equates with the abolition of VAT.

      1. Noo 2 Economics says:

        Stamp duty applies to all transactions above the value of £125000. Of the 10 areas of the UK Land Registry tracks, 6 (including of course the South East) have average prices above this value – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/348543/HPIReport20140828.pdf

        I guess your argument is that after London the South East is one of the most affected by stamp duty and particularly the higher rates of stamp duty in respect of London.

        Property taxes are regressive taxes as are VAT taxes.
        I agree there are some differences – VAT is encountered in our daily purchases whereas property stamp duty is encountered occasionally when we buy a property, if you cannot afford a property in the South East you can move to a cheaper area. If you can’t afford VAT on a cake or clothing or new flooring you need – tough, welcome to UK 2014 where food banks proliferate when they were barely heard of 10 years ago. http://www.trusselltrust.org/resources/documents/Press/TT-Foodbank-Information-Pack-2013-14.pdf

        Abolition of VAT would greatly help these people and maybe stop them from having to approach such organisations, whilst the VAT abolishment would provide an immense boost to people’s buying power and the economy – so I was thinking a little bit more broadly than just property prices in one region.

  2. therrawbuzzin says:

    Surely the best way to take the heat out of the housing market, without seriously negatively affecting the rest of the economy, is to RAISE stamp duty, rather than adjust interest rates, providing the knock-on benefit of increased exchequer returns, which can be used for social provision?

    1. Noo 2 Economics says:

      Regards cooling down the housing market (which isn’t the subject of this post), I would prefer an extension of the Mortgage market review with rules as follows:

      1. Maximum 3 x combined salaries lent subject to a maximum of 2 salaries being considered.

      2. Maximum 80% loan to value.

      All existing rules re future affordability in event of interest rate rises to remain. This would be an ongoing set of rules – not temporary.

      1. therrawbuzzin says:

        My point is that fiscal policy is usually ignored in favour of monetary policy, because govts. dislike raising taxes, keeping one eye on their electorate.
        However, in Stamp Duty, which is a transaction tax, we have a flexible fiscal tool, which can take the heat out of the housing market, whilst, unlike monetary measures, like interest rate rises, does not mortgage payers.
        It’s even possible to make exemptions to stamp duty, e.g. if all parties involved in buying a house are first-time buyers.

        1. Noo 2 Economics says:

          I agree the over reliance on monetary policy to the complete ignorance of fiscal started in the early 80’s which often times is akin to using a sledgehammer to crack a walnut (e.g. 15% interest rates in ’89 to tame 8% inflation).

          However, for me, there is a separate problem in that we are simply over taxed due to large amounts of tax being squandered, so the Government solution is to introduce new taxes/extend old ones rather than ensure value for money for existing expenditure.

          Transactional taxes are taxes and that will not be lost on house buyers. Whilst Governments may dislike raising taxes they certainly haven’t let that hold them back – reference raising of general VAT (a transactional tax) to 20% in 2011 and increase of employee NI conts from 11% to 12% in 2011.

          My preferred structural solution for the housing market, whilst extreme in the short to medium term would be relatively simple to operate (unlike a system of stamp duty exemptions for some classes of purchasers with a tiered set of increasing taxes based upon purchase price, although a wealthy first time buyer would be exempt from stamp duty even if buying an expensive house which would encourage all kinds of abuses) it would create a robust housing market, i.e. one that rose with wages and would therefore be affordable and would bring no further revenues for the Government which in my view is a good and positive outcome.

          And finally, social provision could be vastly improved if Government money wasn’t squandered (HS2, private public partnerships where the private sector makes a killing due to ridiculous contracts signed by civil servants, process inefficiencies in the public sector, Child Benefit not being means tested, various tax easements and grants to companies who don’t need them) with the savings made being accurately targeted at those in need.

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