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Tax on buying a home rises more than ten-fold since mid 1990s

The astonishing impact of stamp duty on homeowners and the housing market is revealed by a new report by the HomeOwners Alliance

May 28, 2013

Stamp duty now costs homebuyers nearly £6,000, a ten-fold increase since 1996. Stamping on Aspiration has revealed the huge burden now imposed on home buyers and the detrimental impact of stamp duty. Some of the key findings are:

  • Average stamp duty paid on buying a home has jumped from £532 in 1995/6 to £5957 in 2011/12. In London, the average amount of stamp duty paid by homebuyers has rocketed to £17,529
  • Stamp duty has risen 7.1 times faster than inflation, 6.5 times faster than average earnings and 4.6 times faster than house prices since 1995/6
  • It is taking far longer for homeowners to save for stamp duty. Average stamp duty paid is now equivalent to 11 weeks average earnings, up from 8 days average earnings in 1995/6
  • The government forecasts it will make as much money taxing people buying their homes as it will from the “sin taxes” on alcohol and tobacco by 2017/18. This is completely inconsistent with its proclaimed aim of helping homeowners and discouraging smoking and drinking
  • On average, home buyers now have to hand over 3.7% of the price of their new home to the government. More house buyers pay stamp duty at 3% or more than the basic rate of 1%

Stamp duty is now so high that it is making it more difficult for first time buyers to get onto the property ladder, and deterring homeowners from moving. Someone buying a £250,000 home with a 95% mortgage will now have to give nearly 40% of the money they have to save to the government. The upfront repeated ramping up of stamp duty by successive governments since 1997 is a major contributor to the decline of homeownership in the UK since 2002.

Homeowners have been hit by a “quadruple whammy” of escalating stamp duty rates, new stamp duty bands, frozen thresholds and rising house prices. Since 1997 – when the government decided to start hiking up the home tax – the number of stamp duty bands has increased from 1 to 5, and the highest rate of stamp duty has increased from 1% to 7%. The government has designed the system so that even small increases in house prices lead to homebuyers having to pay dramatically higher tax. Stamp duty has gone from a tax that most homebuyers don’t pay to one that most have to pay. In 1992/3, only 37% of properties were subject to stamp duty, but now 54% are. Rather than paying many thousands of pounds to the government for the privilege of moving home, homeowners are deciding to build extensions, dig out basements or convert attics.

Paula Higgins, Chief Executive of the HomeOwners Alliance, said:

 “The housing market is being choked by the rising cost of stamp duty.  The overwhelming majority of people want to own their own home, and the government says it wants to help them. But the reality is that its “home tax” is taxing their aspirations to death. With homeownership in historic decline – depriving 5 million people of the dream of owning the roof over their head – the government should not be looking to homebuyers to fill its deficits. It is ludicrous that by its own forecasts the government is expecting to get as much money from its home tax than it is from the sin taxes on alcohol and tobacco. In earlier times, people avoided property taxes by building fake windows or making the first floor bigger than the ground floor – now they are doing it by digging out their basements.”

The HOA makes a number of recommendations to fundamentally reform stamp duty, including increasing it for those buying buy-to-let properties and second homes, to pay for reductions in those just buying a home to live in. It also calls for the thresholds in stamp duty to be raised annually in line with house prices.

Paula Higgins said:

“It is very unfair that ordinary people pay the same tax to buy the roof over their head as investors do when expanding their property empire, or when people buy holiday homes they use only a few weeks of the year. The government must end the reduced rates and exemptions for buy to let landlords and second homeowners, and use it to slash the tax on first time and other ordinary homebuyers.” 

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