If you bought your first home recently, I feel for you.
The Budget surprise of a first-time buyer stamp duty exemption will have cost you potentially thousands of pounds after it arrived too late.
Removing all first-time buyers from the stamp duty net up to £300,000 was an Osborne-sized rabbit out of the hat for Spreadsheet Phil.
It also introduced a George Osborne-style extra level of complexity to a tax that should instead have been totally simplified.
First-time buyers were cut a break in the Budget bit the people who really struggle with stamp duty are home movers
That said, cutting tax for first-time buyers is a noble aim, although we didn’t have to wait long for critical forecasts that it will just drive house prices up.
Philip Hammond’s own watchdog, the Office of Budget Responsibility, was one of the first to get in there.
I believe there’s some slightly flawed logic in the OBR’s case, due to the read across from a temporary holiday rush to a permanent removal. However, it’s easy to see how giving buyers a tax cut would mean they could spend more money on homes.
Nonetheless, I welcome taking anyone out of stamp duty.
That’s because it is a bad tax. It gums up the property market and hinders moves, which helps keep prices high, it also prevents people moving for work and so is bad for prosperity.
Stamp duty is also bad for our personal finances, but very good for banks. Money that could go into your deposit is instead handed over in tax and so more must be borrowed on a mortgage, with a lifetime of interest charged.
Stamp duty has been turned from a simple tax to an almighty mess in the 20 years since Gordon Brown raised it from a flat 1 per cent.
As Chancellor, he and his successors have cashed in on rising house prices, paying little heed to the consequences.
| Property purchase price | Old stamp duty | New stamp duty for first-time buyers |
|---|---|---|
| £150,000 | £500 | nil |
| £200,000 | £1,500 | nil |
| £250,000 | £2,500 | nil |
| £300,000 | £5,000 | nil |
| £350,000 | £7,500 | £2,500 |
| £400,000 | £10,000 | £5,000 |
| £450,000 | £12,500 | £7,500 |
| £500,000 | £15,000 | £10,000 |
I would take stamp duty back to a flat 1 per cent across the board (perhaps with a surcharge remaining for buy-to-let).
This would help the forgotten middle in the housing market, which rarely has campaigners rushing to its cause – people moving house. These are the sellers that first-time buyers purchase from and the buyers who downsizers sell to – they are also the people not moving because it is so expensive.
The problem is that stamp duty now raises too much cash (£12billion this year) and we missed the chance for reform in the financial crisis slump, so I don’t expect that to ever happen.
Barring my flat 1 per cent hopes, it may be time for a radical rethink and to make the seller pay it.
Stamp duty has effectively become a capital gains tax, but one paid by the buyer rather than the seller making the gain. This steps up a property chain until you get to the top, where the seller isn’t buying another property and pays no tax despite most likely making the biggest gain.
It seems completely bizarre that in stamp duty we have created a high tax system, where you foot a bill based on the other party’s profit.
The idea for the seller to pay stamp duty has been floated before and I’ve been reluctant to buy into it, as at the changeover it will mean paying tax twice on the same property – once when you bought it, once when you sell it
Yet, most will be moving up the ladder and if you sell for less than you buy for, then you save on the potential tax bill.
Pulling first-time buyers out of stamp duty removes one rung of double tax on the same home. That could be our first step towards changing stamp duty completely.
