HomeOwners Alliance says government’s stated policy of encouraging home ownership being undermined by duty
The UK housing market is being choked by stamp duty, which has risen by more than seven times the rate of inflation since the mid-1990s, taking the typical tax bill faced by buyers to almost £6,000, a report by a homeowners’ campaigning group has said.
The HomeOwners Alliance (HOA) said the government’s stated policy of encouraging home ownership was being undermined by the duty, which it claimed has had “a downward impact” on the market.
In a report entitled Stamping on Aspiration, it said that while house prices had risen fivefold between 1995-96 and 2011-12, the amount of tax paid on property purchases had increased 11-fold.
The HOA said the average homebuyer now paid stamp duty of £5,957, or 3.7% of their house purchase price. In London, where house prices have continued to post big rises, the average stamp duty attracted by each transaction was put at £17,529.
While the average stamp duty bill was equal to eight days’ earnings in 1995-96, by 2011-12 it would take 11 weeks’ work to pay it off.
“Stamp duty is now so much per transaction … that it has become a deterrent to moving home,” the HOA said. “[It] has gone from a tax that most homebuyers don’t pay to one that most have to pay.”
Until 1997, there was one stamp duty band, with homebuyers paying 1% on all property purchases above £60,000. The new Labour government introduced two new thresholds of £250,000 and £500,000, and since then successive governments have introduced new bands and rates.
Tax is now paid at 1% on homes bought for more than £125,000, at 3% between £250,000 and £500,000 and at up to 7% above that. The £250,000 and £500,000 thresholds have remained unchanged since their introduction, despite a 140% rise in house prices, and the tax rates on them have been increased.
The HOA said freezing those thresholds had led to a “very marked ‘fiscal drag’ effect”, where rising prices automatically pushed houses into the higher brackets. It cited the example of a property bought for £240,000 and later sold for £270,000, moving it from the 1% bracket to the 3% bracket. In this example a 13% increase in the house price results in a 238% increase in stamp duty, from £2,400 to £8,100.
Despite the collapse in stamp duty revenues since the housing market started to falter in 2007, the HOA said the government expected to collect about £7bn in the current tax year and £11.7bn in 2017-18, more than it makes from taxing tobacco.
The HOA wants to see thresholds increased annually in line with house prices, and for the first threshold to be above the average house price. It said buy-to-let investors and second-home buyers should pay more than those buying a home to live in, and the government should consider charging sellers, not buyers.
It also called for first-time buyers to be permanently exempted from the tax. Various stamp duty holidays have been offered by the government to entice first-time buyers into the market, but there is no evidence that they have led to more purchases.
Paula Higgins, chief executive of the HomeOwners Alliance, said: “The overwhelming majority of people want to own their own home, and the government says it wants to help them. But the reality is that its ‘home tax’ is taxing their aspirations to death.”
Current government initiatives to help cash-strapped first-time buyers and movers are in the form of loans and deposit guarantees through the Help to Buy scheme, and in cheaper mortgages through Funding for Lending.
Recent weeks have seen a series of warnings that the chancellor risks causing a new housing bubble, and data from the housing market suggests that prices are on the way up again. On Monday Hometrack reported a 0.4% increase in May – the highest for six years.
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