One of the things I would really like to have seen changed in this week’s budget is stamp duty. Of all the unfair taxes we labour under, it seems to me to be one of the worst. Usually, to pay a tax you need to make a profit of some kind or to earn something. Not so with stamp duty. It must be paid out of income that has already been taxed. Yet at the same time as the buyer of a house struggles to get together the 3% or 4% needed to move, the seller can look forward to banking a nice profit that he’s done nothing to earn. It doesn’t seem quite right.
Stamp duty: thresholds unchanged since 1997
The next infuriating thing about stamp duty is the fact that thresholds haven’t budged since they were introduced in 1997. They were set at £250,000 and £500,000 at the time and no one was much bothered – it really did seem that the higher rates were just for the rich. But since then, house prices have risen 175% and 19% of all the houses in England and Wales (and almost all those in the southeast) fall into the upper bands. Had the thresholds kept pace with prices, says the Halifax, the £250,000 threshold would now be £680,000 and the £500,000 one would be £1,360,000. It’s a classic case of the fiscal drag that Gordon Brown will be most remembered for. It has also raised a fortune for him – £4.6bn in 2005/2006 alone.
Stamp duty: fuelling the house price bubble
But the most irritating thing about stamp duty is that it’s fast fuelling the fire under the property-price bubble Brown said in 1997 he was keen to avoid. In his first budget, he said that he was introducing the banding system because the last thing he wanted was for “house prices to get out of control” and put the economy at risk. Unfortunately, it now appears to be having the opposite effect. How? By making it too expensive for people to move, and hence cutting supply. This is particularly the case in London, where it is the shortage of family homes on the market that is really driving up prices.
Imagine you bought a three-bedroom house in Shepherds Bush eight years ago for £250,000 when you were earning £50,000. Today, the house is worth £800,000 and you earn £70,000. You need another bedroom, so you’d like to move to a house down the road. You reckon you can just about stretch to paying £900,000 to get another bedroom. Then you realise that moving won’t just cost you the extra £100,000. Add in stamp duty and there’s another £36,000 to come up with (to say nothing of estate agent fees). That’s 80% of your take-home salary – and money you don’t have. So you don’t move and your house never makes it on to the market. Supply is squeezed and prices rise. To a greater or lesser degree, this is happening all over London and in the rest of the country’s hotspots. I don’t suppose it’s what Brown initially intended, but I can’t see why that should stop him doing something about it.
Stamp duty: an alternative?
Were I in charge, and for some reason I thought it was vital to tax every move that every member of the UK population made, I might switch things around, dump stamp duty and introduce a small capital-gains tax on the sale of primary homes.