Stamp duty is a government land tax payable on the documents, which transfer ownership of an asset (e.g. on the sale of a house or disposal of shares). It is also payable on a grant of a lease.
It was first invented in 1624 by the Dutch and levied in United Kingdom in 1694. It was found to be a very successful tool in raising income for the government, but at the same time most unpopular when collected, even when its imposition caused riots in the American colonies during 1765. It has now become the oldest tax that the Inland Revenue administer.
At the moment the amount payable is multi-tiered and increased in accordance with the value of the property. At present the rates are 1% on properties over £60,000, 3% on the value of properties over £250,000 and 4% on the full value of properties over £500,000.
With the rapid increase in house prices more buyers from the lower thresholds of the market and in particular first time buyers are now liable to pay stamp duty. The figure for those first time buyers exempt from stamp duty in 1997 has seen changes from 70% in comparison to 24% in 2003 according to the Council of Mortgage Lenders (“CML”).
In 2003 only 14% of all property transfers were exempt from Stamp Duty, 70% paid the lower rates of tax and 13% paid the higher rate of tax. This is a 2% increase on 1997 and in monetary terms equates to more than £2.9 billion of additional income for the revenue.
The present system of calculating Stamp Duty has seen the creation of inefficiencies in the housing market:
First time buyers are now finding it more difficult to step onto the property ladder than existing home-owners who have generated substantial equity in their properties to off-set the blow of Stamp Duty on the rapid increase in property values.
It has created a greater north and south divide. Recent statistics have shown that the south has accounted for 75% of residential revenue income but only amounted to 50% of the residential transactions. This has somewhat been influenced by the initiative introduced by the Inland Revenue on 30 November 2001 to offer exemption for the purchase of properties in certain designated disadvantaged areas, where the price does not exceed £150,000.
It has created an avoidance tactic, where sellers will increase the value of their Fixtures and Fittings and lower the value of the property. This is a particularly popular method of avoiding stamp duty where properties fall within or near the stamp duty thresholds.
So on that basis I would suggest that a much fairer method of calculating stamp duty would be much welcomed with the incorporation of a tapering system reflecting the amount to be paid in line with each of the thresholds and not just to base the amount on the full purchase value.
Stamp Duty Rate Guide for purchase of property
Above £500,000 4%