Stamping on Aspiration: the real cost of stamp duty

Tax on buying a home rises more than ten-fold to nearly £6000 since mid 1990s

Stamping on Aspiration – a HomeOwners Alliance Report : The Full Report in PDF

Press Release

Diagram showing astonishing rise in stamp duty

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See what the Guardian and the Daily Telegraph had to say

 

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. Click here to see the shocking graph
  • 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%

The astonishing impact of stamp duty on homeowners and the housing market is revealed by a new report by the HomeOwners Alliance  – Stamping on Aspiration: the real cost of stamp duty.

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 HomeOwners Alliance 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.” 

2 comments on “Stamping on Aspiration: the real cost of stamp duty

    comments open

  1. Another factor that seems to me to be missed is that moving house produces a huge amount of valuable expenditure, with accompanying VAT and tax, that is denied if stamp duty makes moving unaffordable. This ranges from agents and legal fees, to removals etc. Also, the inevitable expenditure associated with moving such as packing material, new white goods, redecoration, new carpets. The list is endless and much of it is local expenditure. It would be good go know what is the average expenditure and associated tax per move and compare that with Stamp Duty to show that what it gains in one hand is denying the other. Stamp Duty prevents liquidity in a market that if was Duty free, or at least a minimal amount of Duty, would be a great economic boost. Stagnation benefits no one, least of all those wanting to get on the ladder but cannot because no one can afford to move.

  2. Being practical, it is unlikely that Government can afford to give up the income it has now become accustomed to. Similar figures are evident if you look at the proportion of earners caught by the upper rate of tax. The best solution might be to allow the option to add stamp duty to the mortgage and settle it over the lifetime of the property (this would also help with phasing of the bands, which are somewhat arbitrary). In such an instance responsibility for physical payment could pass to the mortgage provider. Initially it could be linked to the derisking schemes that are currently being adopted.

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