Tuesday 9th September 2008
by Bob Bardsley
Know Your Money Editor
Under widespread pressure from participants in the financial services industry, the government recently announced it is to take action on stamp duty. But what exactly did it decide to do, how long will the moves last and who is most likely to benefit? And why have many industry participants been left unimpressed by the announcement?
What will be done?
Chancellor of the exchequer Alistair Darling revealed at the beginning of September that the widely called-for stamp duty holiday is to take place, although some critics were already claiming that the delay in making the announcement had led to a slump in housing transactions. Putting those concerns aside, the terms of the government's deal came into effect on September 3rd and are due to last for 12 months, giving prospective buyers a full year in which to benefit from the offer.
However, the waiver of stamp duty - which was previously charged on properties worth in excess of £125,000 - only applies on homes costing a maximum of £175,000. Therefore, there is now a £50,000 buffer in which buyers who would previously have been charged stamp duty land taxes of one per cent the value of the property can now avoid paying the tax at all. The previous upper bands of three per cent from £250,001 to £500,000 and four per cent above that figure continue to apply over the coming year.
Who will be affected?
According to the Land Registry, the average selling price for a UK property stood at £178,364 in July 2008. While more recent house price indices may have been published, the Land Registry figures are based on the actual amount paid for houses during the month in question - which could make them the most relevant in terms of how much stamp duty buyers might need to pay on their new homes. With the average domicile still falling into the range on which stamp duty is charged, the majority of Britons are likely to still be facing tax of one per cent or greater when buying accommodation.
Ray Boulger, senior technical manager at independent mortgage broker John Charcol, echoed that fact by saying that "it will help a small minority of people". He pointed out that to suspend all stamp duty for an entire year would have cost the government less than £2 billion - in return for which a healthier housing market and "fair playing field for all" could have been established. The Association of Mortgage Intermediaries added to this, welcoming the £50,000 buffer but suggesting that an index-linked approach to stamp duty - where it would rise with inflation - might have been a better long-term approach.
However, Liverpool residents might be welcoming the news, as the city has crossed the £125,000 threshold in terms of average property prices in recent years. Since being announced in 2003 as holding European Capital of Culture status for 2008, the average Liverpudlian home has risen in value by 76 per cent, taking it from £79,886 to £140,842. Thanks to the stamp duty waiver, anyone buying such a domicile in the next 12 months can expect to avoid incurring stamp duty in spite of this rise.
What about everybody else?
If you rent your home, stamp duty should not really be an issue - it only applies to individuals when buying new property. The Child Poverty Action Group, however, has called for the government to do more to assist with the wider costs of running a household, including those faced by tenants. Among the rising budgetary considerations the group has identified as potentially needing government assistance are fuel costs - which could impact households with cars as well as all families' utility bills - and inflation in food prices.
The National Association of Estate Agents, meanwhile, points out that the fixed nature of the stamp duty bands fails to take into account regional variations in property prices. In London and the south-east, the organisation notes, the average home costs more than elsewhere in the country. As such, first-time buyers in these regions could find they still have to pay tax in the coming months.
Will it help me?
Some critics have already argued that the stamp duty cut is rendered "pointless" due to wider trends in the property market. Lord Matthew Oakeshott, Treasury spokesperson for the Liberal Democrats, explains that falling house prices mean the savings made in terms of tax could be cancelled out through reduced equity within days of moving in. Referring to the most recent Halifax house price index, Lord Oakeshott claims that it could take as little as 16 days for a new home's value to drop to a level equivalent to having paid stamp duty on it in the first place. Should such a trend continue over the remainder of the 12 months, it could be argued that few people are likely to profit from the tax cut overall.
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