Stamp Duty explained
Chancellor Alistair Darling may have largely ignored it in his Budget, but what exactly is Stamp Duty? Barney McCarthy looks at the basics
Whether it be your first step on the property ladder, or the cottage you have earmarked for your retirement, moving house is a costly process. And even after you have found a mortgage, paid legal fees, obtained a valuation and survey, taken out insurance, bought new furniture and paid for the removal van, you still have to pay a levy on the property transaction, known as Stamp Duty.
The tax is applicable to all properties sold for more than £125,000. This threshold may seem miserly – particularly given that the average house price in the UK is now nudging £200,000 – but until the 2005 Budget the figure was a meagre £60,000. For properties between £125,001 and £250,000, the rate of Stamp Duty liable is 1%. Homes between £250,001 and £500,000 will incur 3%, while properties worth more than £500,001 will be taxed at 4%.
A taxing matter
Research by Halifax shows that the average UK homebuyer currently pays £1,971 in Stamp Duty. This amounts to 7% of their annual earnings. In 29% of local UK authorities, new homeowners are faced with a Stamp Duty bill equivalent to more than 20% of average annual gross earnings. As house prices are higher in the South, these areas are more likely to be subject to Stamp Duty. Halifax found that the average first-time buyer in 99% of local authorities surveyed in the South paid Stamp Duty in 2007. This was compared with 42% of those in the North.
If the Stamp Duty threshold had been increased in line with house price inflation, it would currently stand at £191,000, £66,000 above its present level, according to Halifax’s calculations. Martin Ellis, chief economist at Halifax, says: “The higher Stamp Duty thresholds have not been altered since their introduction a decade ago. We call on the Government to raise all Stamp Duty thresholds to account for the rise in house prices over the past decade and to index for house price inflation in the future.”
Tight Budget
Despite the growing number of first-time buyers being impacted by Stamp Duty, Chancellor Alistair Darling made no adjustment to the threshold in his recent Budget. The only concession made was that buyers on shared ownership schemes will only be liable to Stamp Duty once they own 80% of their property. While the gesture has been generally welcomed by the industry as a first step, there is concern that such a move only benefits key workers who make up a small proportion of first-time buyers. Helen Adams, managing director of first-time buyers’ website FirstRungNow.com, says: “The Government continues to leave the next generation high and dry by offering almost no relief in terms of tax or Stamp Duty. We welcome development of the shared equity Open Market HomeBuy scheme lowering the proportion of the property that purchasers will need to fund ‘themselves’, although it is disappointing that these enhancements will only aid key workers, not the hundreds of thousands of others keen to invest in their own future.”
David Newnes, managing director of estate agent Your Move, believes the Chancellor has not taken the current economic climate into consideration. “If Darling had given first-time buyers a Stamp Duty holiday, the surplus costs of buying a home would have dropped significantly, allowing them to get a step up onto the property ladder,” he says. “The Chancellor has failed to acknowledge the effect the credit crunch has had on first-time buyers’ ability to borrow.”
For now, first-time buyers will have to factor the cost of Stamp Duty into the cost of buying a home and pray for respite in future Budgets. Don’t hold your breath though.
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