On Wednesday, George Osborne went some way towards attempting to boost the chances of a Tory electoral victory by announcing changes to the stamp duty system, which he claims will benefit 98% of house buyers. The change sees a move away from the ‘slab’ system of stamp duty charges to a gradual system similar to how income tax is levied, something that has been called for by politicians and house-buyers alike.
The old system had long been criticised as being unfair to buyers who wished to purchase a property just over £250k, but would see a tripling in the amount of stamp duty they were charged as a result. Under the new system a house buyer continues to pay nothing on the first £125k of the value of the property, but pays only 2% on the value between the £125k-£250k:
|Example property||Tax under old system||Tax under new system||Savings|
|£125,000||No stamp duty||No stamp duty||No stamp duty|
|£185,000 – Average Help to Buy Home||£1,850||£1,200||£650|
|£275, 000 Average family home||£8,250||£3,750||£4,500|
|£510,000 – Average London home||£20,400||£15,500||£4,900|
*Source: HM Treasury
Osborne’s changes now make the stamp duty system fairer for the ‘squeezed middle’ trying to get onto the property ladder.
The reforms do not however provide much cause for celebration for the numerous twenty or thirty-somethings renting or living with family within and around Greater London because of inflated property prices. The Land Registry House Price Index shows the average house price in October was £460 060; attaining a deposit for which is very much unattainable for most first-time buyers. The stamp duty paid on a property this price under the new rules is £13 003, equating to a measly saving of only £799 had the property been bought under the old rules. While the changes may benefit the rest of the country, they do very little in the way of boosting the London housing market.
On the other end of the property scale are those over £1.5m, sales of which will see an increase in the stamp duty owed. High-end property estate agents Foxtons saw the announcement hit their share price due to fears of the impact of the reforms, with reports of buyers desperate to close deals before midnight on Thursday while they still had the opportunity to choose to pay stamp duty under the old rules. In some ways Osborne has made a clever ‘Robin Hood’ like political move, by increasing the tax for those able to afford to pay it and cutting it for the average buyer.
Across the country however, the news is likely to artificially buoy house prices now that buyers have an extra few thousand to spend on their purchase. The anticipated effects can already be seen; estate agent Rightmove’s shares closed almost half a percentage point higher by close of business yesterday in anticipation of an increase in the number of house purchases. In the long term, buyers may not be saving very much at all.