Stealth tax hits hard
FIVE-MINUTE STAMP DUTY
THE GOVERNMENT is launching stealth tax raids on so many fronts that it’s easy to overlook some of the cunning ways it makes money out of us.
Anger has focused around the National Insurance hike and income tax, inheritance and capital gains tax freezes, but the stamp duty burden is rising sharply, too.
Between April 2021 and this February, HM Revenue & Customs raised a staggering £16.9billion from this levy on property buyers, up £6.1billion in a year.
That is more than three times the £5.5billion it raised from inheritance tax (IHT) over the same period, yet IHT generates much more resentment.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said HMRC enjoyed “bumper” stamp duty receipts over the last year even though the stamp duty holiday was not phased out until September 30, 2021.
“It was boosted by the so-called “race for space” as people looked to move out of cities in favour of larger properties with gardens, which kept the property market red hot until the end of the year.”
Stamp duty receipts were also boosted by the 14.3 per cent increase in house prices over the last year, with the average property jumping a staggering £33,000 to £265,312 in March, according to
Nationwide.there is another reason why stamp duty is proving so lucrative – the £125,000 threshold for paying it has been frozen since 2006.
If it had increased with inflation, it would be more than £67,000 higher at £192,450 today.
Christine Cairns, personal tax expert at PWC UK, said somebody buying a £250,000 property pays an extra £1,100 as a result (although first-time buyers are exempt on the first £300,000).
“The cost would be even higher for properties worth more than £250,000, where stamp duty rates are greater.”
Stamp duty is charged at 2 per cent on property values between £125,001 and £250,000, then steadily rises until it hits 12 per cent on the portion of any sale above £1.5 million.
Buy-to-let investors and second homeowners pay a surcharge of 3 per cent, while overseas residents pay another 2 per cent. Stamp duty is a tax on mobility, punishing those who have to move to find work, and bumping up already high removal costs.
It also deters people from moving up the property ladder, said Michael Zucker of estate agency Jeremy Leaf & Co.
“Whereas it used to be commonplace to move to a larger house when necessary, homeowners are more likely to stay put and build an extension or convert the roof space.”
The expense also deters older people from downsizing to a smaller property, as they will have to pay stamp duty on the new purchase, eating into the money generated from the sale.
This cuts the supply of larger homes, hitting families searching for more living space, Zucker said.
Many in the property industry have called for older downsizers to be exempt from stamp duty on their purchase.
Tomer Aboody, director of property lender MT Finance, said this would increase housing market activity. “It would also keep a lid on prices, as there would be a better balance between supply and demand.”
As we saw during the stamp duty holiday, scrapping the tax could dramatically increase activity.whether it would cut prices is another question.with property in short supply, vendors might simply ramp up asking prices to compensate.
With the Government so short of cash, any reform looks a long way off, which is bad news for both homebuyers and vendors.