Stamp duty to remain high for UK home buyers
UK home buyers will be disappointed that the Chancellor did not take the opportunity in his 2004/5 Pre-budget report to reduce the increasing burden of housing tax policy – stamp duty and inheritance tax.
The UK housing market has remained strong in 2004, with house prices rising by 16.8 per cent during the year. Halifax estimates that the Government currently takes around £4 billion each year from residential stamp duty alone.
Halifax, the UK's largest mortgage lender, will lobby all three main political parties for changes in property taxation, especially inheritance tax and stamp duty, in the run up to the next general election.
Research by the Organisation for Economic Co-operation and Development (OECD) shows that UK property taxes, as a percentage of Gross Domestic Product (GDP), are the highest for any major developed country. According to the OECD, UK property taxes have risen from 3.7 per cent of GDP in 1995 to 4.3 per cent in 2002 (using the most current data available). In contrast, the average for Euro-zone countries is just 1.9 per cent.
The UK is one of only four OECD countries where property taxes make up more than ten per cent of Government revenues. The Euro-zone average is 4.9 per cent. In the UK, property taxes as a percentage of total Government revenue have increased from 10.5 per cent in 1995 to 12 per cent in 2002.
Shane O'Riordain, general manager for Government relations at Halifax, said: ‘It is disappointing that the Chancellor has not taken steps to ensure housing tax revenue is fairer where it counts, particularly for first-time buyers. As a very minimum we would like to see property tax thresholds automatically aligned with house price inflation.’
Ray Boulger of Charcol, says, ‘With income tax, the higher percentage rates of tax are only payable on the amount of income over certain thresholds. However, with stamp duty land tax, once you reach a certain level borrowers are forced to pay the higher percentage on the total amount. A sensible starting point for the one per cent tax band would be the average property price, based on Land Registry figures (currently £188,000), and the annual inflation adjustment (up or down) should also be based on Land Registry figures.’
Halifax estimates that the stamp duty threshold (currently £60,000) would currently be £146,750 if it had been increased in line with the rise in house prices since March 1993 – the last time that the threshold was increased. In 1993 almost two-thirds of dwellings sales were beneath the stamp duty threshold, compared with around a quarter now. According to Halifax figures the average first-time buyer now pays more than £1,000 in stamp duty, equivalent to around six per cent of their deposit or around two weeks of their annual income.