I have read that Boris Johnson has promised to cut the rate of stamp duty should he win the race to become the new Conservative leader and Prime Minister. Should I delay buying my new home?
Boris Johnson, the frontrunner in the Conservative Party leadership race, is considering abolishing stamp duty on homes worth less than £500,000 and reversing tax increases introduced in 2014 for more expensive homes.
Mr Johnson has repeated his pledge to raise the threshold for stamp duty from £125,000 to £500,000 while lowering the top rate from 12% to 7%. The policy pledge saw stocks rise for housebuilders on the London stock exchange last week. It is estimated that more than two-thirds of residential transactions in Northern Ireland would be exempt from stamp duty under the plans. If the 3% surcharge for landlords and additional home buyers was dropped as well, just 10% of properties bought last year would be liable for the tax.
The UK is not alone in the world in employing stamp duty. You can find some kind of property purchase tax all over the world. It has been a tax in the UK since the 1950s. However, it’s not a popular tax, and it’s certainly not a popular tax when the rates are as high as they are at the moment.
The most recent increases in stamp duty came through the last Conservative government when George Osborne was Chancellor of the Exchequer. In 2014, taxes on the most expensive properties rose from 7% to 12%. A couple of years later, a 3% additional charge was introduced, meaning that buying a second home worth more than £1.5 million was pinned to a 15% tax rate.
One of the major problems with these changes, and indeed, with high stamp duty in general, is that it massively hampers household mobility. The higher the rate, the more people the government prevents from moving house due to its cost. Buying and selling activity declines, the market goes into a semi-state of gridlock.
Current stamp duty rates have particularly strangled the top end of the market. Especially in London where the average house price is disproportionately high, those looking to buy and sell are discouraged from doing so.
It’s crystal clear, whether you look back on sales volumes, or whether you look at tax receipts, that the increase in stamp duty originally imposed by George Osborne hasn’t proved effective. The market simply hasn’t been able stomach the rises and the outlook doesn’t seem to be improving. Sales volumes continue to gradually decline, as does tax revenue.
Slashing the top and bottom rates, as Mr Johnson seems to be considering, will relieve the burden for some, and it’s a good start. But I suppose the real question is, “will it be enough to kickstart the sales market again” – a market that hasn’t been performing too well since the 2008 crash.
Perhaps the government can also look to reform help-to-buy, which has to date, only really helped house-builders. Allowing help to buy on resale properties, and allowing investment companies to set up property funds for help to buy are two ideas that initially spring to mind.
Ultimately, more will still need to be done, even if stamp duty is cut for some. Brexit may be a whirlpool of an issue right now, but even so, the next Prime Minister will need to take time to think about not only stamp duties, but the right way forward to stimulate growth in the real estate sector – the bedrock of a healthy economy.
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