Chancellor fails to cheer homebuyers, says Halifax

UK homebuyers will be disappointed the chancellor did not take the opportunity to reduce housing tax policy, stamp duty and inheritance tax, says Halifax.

The UK housing market remained strong in 2004, with house prices rising by 16.8% during the year. Halifax estimates that the government currently takes around 4 billion each year from residential Stamp Duty alone.

Halifax, the UK’s largest mortgage lender, will lobby all three main political parties for changes in property taxation, especially Inheritance Tax and Stamp Duty, in the run up to the next General Election.

Halifax believes that, at the very minimum, property tax thresholds need to be automatically aligned with house price inflation.

Research from the Organisation for Economic Co-operation and Development shows that UK property taxes as a percentage of Gross Domestic Product are the highest for any major developed country.

The OECD says UK property taxes have risen from 3.7% of GDP in 1995 to 4.3% in 2002, the most current data available. In contrast, the average for Euro-zone countries is just 1.9%.

The UK is one of only four OECD countries where property taxes make up more than 10% of government revenues. The Euro-zone average is 4.9%. In the UK, property taxes as a percentage of total government revenue has increased from 10.5% in 1995 to 12.0% in 2002.

Shane O’Riordain, general manager of government relations at Halifax, says: “It is disappointing that the Chancellor has not taken steps to ensure housing tax revenue is fairer where it counts, particularly for first-time buyers. As a very minimum we would like to see property tax thresholds automatically aligned with house price inflation.”

Halifax estimates that the Stamp Duty threshold, currently 60,000) would currently be 146,750 if it had been increased in line with the rise in house prices since March 1993, the last time that the threshold was increased.

In 1993 almost two-thirds of dwellings sales were beneath the stamp duty threshold compared with around a quarter now.

The government currently takes around 4bn each year from residential Stamp Duty.

Halifax figures say the average first-time buyer now pays more than 1,000 in Stamp Duty, equivalent to around 6% of their deposit or around two weeks of their annual income.

In 1993, the typical FTB paid no stamp duty with London the only region where the average FTB paid the tax. In 2003 the average FTB in every region of the UK paid Stamp Duty.

The inheritance tax threshold has increased 75% from 150,000 in 1992/93 to 263,000 in 2004/05. During the same period house prices increased by 139%. If the inheritance tax threshold had kept pace with house price inflation over this period, Halifax estimates it would now stand at 359,000.

The number of properties in the UK valued at more than the Inheritance Tax currently stands at an estimated 2.4m. Halifax estimates the number of properties now worth more than the Inheritance Tax threshold is almost five times greater than in 1997.

The revenue raised by the government through IHT has risen by 1bn since 1995/96 from 1.5bn per year to 2.5bn in 2003/04.

Estates valued at under 500,000 accounted for 69% of all estates paying IHT and for 23% of all of the IHT raised.

Inland Revenue figures say approximately 40% of IHT taxpayers, accounting for half of all IHT revenues reside in London and the South East.