London home owners are being hammered by stamp duty costs when they move, an estate agency has warned ahead of the Budget.
The average home buyer in the capital now pays the equivalent of three years worth of their annual income tax bill in stamp duty, according to Haart, which has 150 branches countrywide.
It says that not only do ordinary families face the burden of high house prices – meaning they need to find potentially hundreds of thousands of pounds to move up the ladder in the capital and commuter belt – but also a stamp duty system unfairly weighted against them.
Huge bill: Those buying in London – including first-time buyers – are being stung by the new stamp duty system
Former Chancellor George Osborne totally revamped the stamp duty system two years ago to remove cliff edge increases caused by it slab-style charging. For those buying more expensive homes bills remained similar or above certain levels increased dramatically.
As recently as 1997, stamp duty was a flat 1 per cent on property transactions regardless of price, but successive Chancellors from Gordon Brown onwards sought to profit from rising property prices by increasing rates to boost Treasury coffers.
It is estimated the Treasury will rake in £78.1billion via the tax between 2017 and 2022, compared to £50.9billion in the previous five years.
There are calls on the Chancellor to cut stamp duty in the Budget, but any moves are likely to only come for lower value properties or first-time buyers and not those who forced by high house prices to pay more for a family property in their home area.
In large parts of London and the South East, where family homes can cost £700,000 or more – a stamp duty bill would amount to £25,000.
At present, buyers of homes between £250,001 and £925,000 have to pay two per cent on the first £125,001-£250,000 and then five per cent up to £925,000.
With the average price in London touching half a million pounds, a typical buyer is landed with a bill of £14,200. Use our stamp duty calculator to work out the cost.
Gordon Brown: The then Chancellor tinkered with the rates in 1997 – and it has risen ever since
How stamp duty rocketed
Up until 20 years ago, stamp duty was a flat one per cent for properties bought for more than £60,000.
But then then Chancellor Gordon Brown tinkered with the rates. Additional levels were added of 1.5 per cent above £250,000 in 1997 and two per cent above £500,000. Higher rates were charged on the full purchase price, due to the slab-style system.
As house price inflation took off, Mr Brown decided to cash in further by raising the tax again to three per cent above £250,000 and four per cent above £500,000 in 2000.
The one per cent initial level was raised to its current threshold at £125,000 in March 2006.
George Osborne raised stamp duty to five per cent above £1million in 2011, and seven per cent above £2million in 2012.
In December of 2015 a dramatic change arrived, with stamp duty shifted to an income tax-style marginal system, whereby rates stepped up above certain thresholds.
This involved new thresholds being introduced including a top rate of 12 per cent above £1.5million. Someone buying a £500,000 home would pay nothing on the chunk up to £125,000, 2 per cent on the chunk between there and £250,000 and 5 per cent on the next chunk up to £500,000 – delivering a total bill of £15,000.
Since April 2016, a surcharge of three per cent has been added onto second homes, such as buy-to-let.
|Band||Existing residential SDLT rates||Additional rates for landlords|
|£0 – £125k||0%||3%|
|£125,001 – £250k||2%||5%|
|£250,001 – £925k||5%||8%|
|£925,001 – £1.5m||10%||13%|
|* No stamp duty is paid on property transactions costing less than £40,000 as these are considered low value and not reported to HMRC|
How stamp duty hits some areas harder
According to Haart, in London and the Home Counties, the average property price is an average of £258,000 more than the rest of the country.
In London, the average house price is £484,000.
£35,000: Average London salary
£4,700: Amount payable on income tax
£484,000: Average London house price
£14,200: Stamp duty payable on average house
Londoners’ raw deal means that in addition to paying almost £50,000 for 10 per cent deposit, they are also paying a stamp duty bill which is typically more than £14,000.
This is 600 per cent higher than the average amount paid across the rest of the UK, despite the fact that the average London salary is only 20 per cent more than the average UK worker’s.
Paul Smith, chief executive of Haart, said: ‘Excessive rates of stamp duty are holding the London property market back.
‘Potential buyers are faced with a financial burden far greater than the one experienced by past generations, and for thousands in the capital owning a home is becoming an impossibility.
‘Some first-time buyers across the country are able to avoid stamp duty entirely – £125,000 in some parts of the UK can get you a three-bedroom terraced house, however in London the most this will get you is a 25 per cent share of a one bedroom flat.
‘Instead the typical first-time buyer London home sits within the third stamp duty rate band.
‘It is wrong to penalise aspiring home owners and movers in London just because prices are so high and unless something is done about this we are at risk of seeing a mass exodus to other regions of the UK.’
Government stamp duty reforms over the last two years have done little to help buyers in the capital Haart says, especially first-time buyers who are at a significant financial disadvantage to getting a foot onto the ladder, in comparison to their cohorts across the country.
Under pressure: Property is likely to be high on the agenda in the Budget – but what will Philip Hammond deliver?
This struggle is echoed through its branch data which shows that there are 16 per cent fewer first-time buyers in the capital registering to buy compared with last year.
Meanwhile, stamp duty income for the exchequer has reached an all-time high.
But home sales are holding up across UK
There were 105,260 residential home sales in October, HMRC figures show.
This is up 1.7 per cent between September 2017 and October 2017 and 9.2 per cent higher compared to the same month last year.
Jeremy Leaf, north London estate agent, said: ‘They bear out what we’ve seen in other recent reports that the market is proving much more resilient than we might have expected.
‘However, the government could do much more to promote transactional activity which would benefit the whole economy.’
HMRC pocketed £12.8billion in the year to June 2017, which is £2billion more than when the UK housing market reached its peak in 2007 prior to the financial crash.
Haart is urging the Government to stop its excessive profiteering at the plight of the aspiring home buyer.
Mr Smith added: ‘The Government so far has not been listening because they have become so dependent on the income from stamp duty.
‘But tactical interventions such as a stamp duty holiday for first-time buyers could make a massive difference without having to dig too deep into the Government’s money pot.
‘A cut in stamp duty should not be seen as sign of weakness but instead as a positive step that will get the market moving.’
Landlords want surcharge scrapped
Separate figures from the Residential Landlord Association shows that two thirds of landlords are reluctant to invest in new properties as a result of the Government’s stamp duty levy on additional properties.
The measure was introduced by previous Chancellor George Osborne in an effort to support first time buyers into home ownership.
However, figures from UK Finance show that between August and September 2017 there was a 10 per cent fall in the number of mortgages provided to first time buyers.
With demand for private rented housing likely only to increase, the RLA is calling on the Chancellor to use the budget to scrap the stamp duty levy.
David Smith, RLA policy director, said: ‘The previous Chancellor introduced the stamp duty levy to support first time buyers, yet the figures show this simply is not happening.
‘Many of those looking for a place to live are facing a perfect storm – good landlords not prepared to invest in new homes to rent, whilst those same people are unable to access home ownership sectors.
‘It is clear that the stamp duty levy is hurting but not working for anyone. It is time to scrap it.’
What will be in the Budget… and what should be? Listen to the This is Money Podcast
After the last Budget mess, the snap election that went wrong, the unexpected rise of Corbynism, and the Brexit arguments that just won’t go away, the Chancellor will hope that he can get everything back on track on Wednesday.
So what could he deliver – and what should he?
From help for younger people, to stamp duty cuts, pension tinkering, building more homes and just fixing the roads, in this week’s podcast Simon Lambert, Georgie Frost and Rachel Rickard Straus take a run through what might come up – and what they think should be done.
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