The big Stamp Duty rip-off

The higher Stamp Duty thresholds have remained unchanged since 1997, despite a 140% rise in property prices - costing homebuyers thousands.

Stamp Duty has come a long way since its inception in the 17th century as a tax levied on vellum, parchment and paper. Nowadays, around a quarter of property sales will attract the higher 3% rate of Stamp Duty Land Tax (SDLT) - adding a minimum of £7,500 onto the overall price tag.

But it hasn’t always been this way; just 10 years ago this percentage stood at 5% - so why the five-fold increase?

Static thresholds

As it stands the thresholds for SDLT are as follows:

Purchase price/lease premium or transfer value	Stamp Duty Land Tax rate	Stamp Duty Land Tax rate for first-time buyers
Up to £125,000	0%	0%
£125,000 - £250,000	1%	0%
£250,000 - £500,000	3%	3%
£500,000 - £1 million	4%	4%

Source: HM Treasury

The percentage tax is levied regardless of where the property price falls in the threshold. So if you buy a house for £500,004 – you’ll pay £5000 more in SDLT than if you bought it for a fiver less.

But it’s not the percentages that are pushing up the number of homebuyers having to shell out for SDLT – it’s the thresholds.

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The top two bands of SDLT – £250,000 and £500,000 – have remained unchanged since their introduction back in July 1997. That’s despite house prices increasing by a massive 140% in the same period. According to Halifax stats, if the bands had been increased in line with rising house prices then the £250,000 threshold would now stand at £600,000 and the £500,000 threshold would be at £1.2m.

The failure to adjust these thresholds has pushed more and more people into the higher bands and caused this five-fold increase in home-buyers paying SDLT. Bad news when you consider the stagnant state the property market is currently in.

But it’s no surprise that the government isn’t changing these thresholds...

Rising revenue

In 2008/9 SDLT generated £2.9bn of revenue for the state. This rose by £300m in 2009/10 to £3.2bn – 86% of which came from the two higher SDLT bands. In total SDLT revenues have actually dropped by almost half since it reached at peak of £6.7bn in 2007/8. But this decline can be explained by drop in house prices and number of sales within this period.

In fact, the average Stamp Duty bill has increased by 88% over the last decade, from £955 in 2000 to £1,793 in 2010.

But regionally these increases have been concentrated more heavily in certain areas – take a look at this table comparing the change in SDLT to the change in house prices across the country.

Region	Average stamp duty paid, Dec 2000	Average stamp duty paid, Dec 2010	10 year % change	House price change 2000 – 2010 and rank
London	£1,790	£8,609	381%	63% (9)
Yorkshire and The Humber	£620	£1,346	117%	125% (1)
Scotland	£667	£1,440	116%	83% (7)
Wales	£639	£1,335	109%	108% (2)
North West	£700	£1,385	98%	106% (3)
South West	£1,008	£1,975	96%	89% (5)
West Midlands	£794	£1,497	89%	85% (6)
East of England	£1,108	£2,081	88%	79% (7)
Northern Ireland	£756	£1,400	85%	93% (4)
South East	£1,427	£2,389	67%	75% (8)
UK	£955	£1,793	88%

Source: Land Registry and Halifax calculations

If you compare these figures to the Halifax house price index looking at price changes across the regions between 2000 and 2010, a pattern starts to emerge. The regions with the biggest jump in house prices have also experienced the biggest jump in SDLT amounts as more homes are pushed into the higher bands.

London is the exception and is hit harder by SDLT because of the artificially high property prices when compared with the rest of the country. The capital’s home-buyers will also be the hardest hit when a new 5% top rate of SDLT for properties worth over £1m comes into force next month. 4.7% of homes are currently sold for over a million in London, compared to a national average of just 1.1%.

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With tax takings like these to be trousered, it’s not hard to see why the government are reluctant to change the thresholds.

Avoiding Stamp Duty

Apart from simply buying a cheaper property, avoiding this pesky tax is not easy. Changes made in 2003 have cracked down on the dodgy practice of artificially lowering a property price by claiming to pay for fixtures and fittings. This means that if the tax-man gets wind of a property sold for just under a threshold with a large amount of fixtures and fittings – he’ll pop round to inspect it!

There were a couple of loopholes available for those looking to buy expensive homes that involved purchasing a property through a company or buying a 999 year lease on the home – but these were all shut down in the last Budget.

But the chancellor did relax Stamp Duty rules for buy-to-let landlords by proposing that tax on the purchase of more than one property will be calculated by the average price, not the bulk price.

SDLT relief for first-time buyers is still also in operation up to £250,000 (when the 3% rate applies) and if you purchase a house in a disadvantaged area the 1% limit is extended to £150,000.

What do you think?

Should the stamp duty thresholds be modernised? Or should the whole tax be overhauled altogether?

Let us know your thoughts in the comment box below.

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