Stamp Duty changes – will they help?
publication date: May 1, 2010
As we hit election time it is by no means clear who will govern the UK for the next five years. The Tories’ big gift – as far as the housing market is concerned – was to have been the removal of Stamp Duty on all properties under £250,000, when bought by First Time Buyers. Most annoyingly for the Tories, Alastair Darling pinched their plan and announced the same ‘gift’ in the March Budget. The £250,000 relief is only for first-time buyers and is temporary for two years starting April 2010. To qualify, joint purchasers must both be genuine first time buyers and must occupy the property as their main (or only) home - so it’s no help to budding developers and landlords. Purchases under shared ownership transactions and alternative finance arrangements may qualify for the relief in certain circumstances.
To pay for this ‘help the poor’, measure, the Labour Chancellor donned his green outfit and launched a large arrow at the ‘rich’. From 6 April 2011, all homes purchased for in excess of £1 million will attract a five per cent SDLT levy - up from the current four per cent payable. This five per cent is paid on the whole of the purchase price, and not just the element over £1 million; something quite specific to Stamp Duty taxes. The new five per cent rate for residential property over £1million applies only to residential and not commercial.
But will it make any real difference?
Increasing the threshold to £250,000 now means that two thirds (65 per cent) of all properties currently on the market across the UK are exempt from Stamp Duty tax for first time buyers, according to FindaProperty.com.
Currently, 43 per cent of all properties for sale cost between £125,000 and £250,000, and it is people buying at this range who will make the saving, with the total saved in Stamp Duty from these sales being a whopping £320,625,0001.
Across the UK, all regions, bar London and the South East have average house prices of under £250,000 (see table).
- Nigel Lewis, Head of Content at The Digital Property Group, said, “We applaud this change which will benefit first time buyers, because the property market is cyclical it will also benefit those at other stages of the property ladder in many regions. This is a significant move which will aid market recovery.”
- Andrew Turner, Head of Residential Agency at RICS says, “The five per cent levy on properties over £1 million may create a short term stimulus in the market as those thinking of buying and selling will move quickly to avoid the hike. This will filter down through the market.” A RICS survey found that 56 per cent felt the re-shaping of SDLT would increase activity.
- Douglas Sleaper, Group Sales Director for Badger Holdings, believes it will help bring stability, “First-time buyers are the ‘life-blood’ of the property market and in a climate where lenders are demanding deposits in excess of 15 per cent, anything that is geared towards assisting such buyers is a positive step.”
- Camilla Dell, Black Brick Property Solutions, says, “The rise in SDLT to five per cent for a £1million+ property may cause people to buy this year. We could see a rush of transactions taking place before April 2011, causing prices to rise.
- Penelope Court at Beauchamp Estates, says,“The rise is unlikely to deter too many purchasers at this level. Properties that are owned by single vehicle off shore companies will be even more likely to attract buyers for the company rather than the asset thereby potentially reducing stamp duty revenue.”
- Nathalie Hirst, Director of London at Prime Purchase, says, “The exemption for first-time buyers of properties under £250,000 was welcome because it will hopefully increase sales at the bottom end of the market and push activity upwards”.
- Harpal Singh, MD of Conveyancing Alliance argues that the £250,000 level suspension should have applied to all homebuyers. “However, in reality, I am sure no one expected to hear this and anything geared towards such buyers has to be a positive step. It is good news as it will just give the whole country that little bit of extra confidence, but, with first time buyers currently requiring a substantial deposit, borrowing will continue to play a big role in stopping them getting on the property ladder.”
Detailed analysis of 2009 full year Land Registry data by Zoopla.co. uk shows there were 4105 homes sold above £1m last year. Four fifths (81 per cent) of all million pound homes are in London and the South East. The capital is home to 57 per cent of all property millionaires, with the largest share residing in Kensington (W8) where 48 per cent of all properties are worth over £1 million. Outside the capital, Virginia Water in Surrey leads the property millionaire stakes, with 28 per cent of homes in the area are worth more than a million pounds, compared to a national average of just 0.88 per cent.
However, property millionaires in the North East have been hit the hardest by the recession over the past two years, with an 83 per cent reduction in the number of those who can now claim to be property millionaires. Wales has also been hard hit, losing 56 per cent of its property millionaires over the same period.
- Nicholas Leeming, commercial director of Zoopla.co.uk said, “Taxing the rich makes a good headline, but it won’t raise much money for the government’s fiscal black hole. With the total Stamp Duty tax take reaching almost £3 billion last year, this measure will contribute only roughly two per cent extra tax, a tiny amount. Raising Stamp Duty on £1 million homes is a cynical move by the government to tax home buyers who tend not to be their core voters. The burden will fall overwhelmingly on London and the South East.”
- Guy Meacock of Prime Purchase London agrees. “The decision to increase the rate of Stamp Duty on properties worth over £1 million to five per cent is not helpful and could cause some stalling in the current market. For the prime Central London markets – over £5 million – we don’t feel the increase will have much impact other than being a minor annoyance”.
- Tony Bernstein, senior tax partner, HW Fisher Chartered Accountants, said, “The Budget was a party political broadcast, delivered with more than an eye on the impending General Election. Although raising the Stamp Duty threshold to £250,000 will attract significant comment and plaudits, its real impact will be limited as it is restricted to first time buyers. The previous extension up to £175,000, which ended on 31 December, was available to all buyers.”
- Peter Rollings, MD, Marsh & Parsons, says that the Chancellor’s measures won’t help first time buyers in central London. “Only three per cent of the homes we have for sale fit into the sub £250,000 category. Admittedly, central London may not be typical first time buyer territory, but it’s little wonder why. Lenders now require a 25 per cent deposit from first time buyers, they need to put down over £84,000 to purchase the average London property – realistic for only a tiny minority. The increase tax payable on a home worth £1million – which is not the merely preserve of the super-rich in the capital – will hit Londoners hard. Lots of flats fit into that category in London. There will be repercussions for the wider property market down the line.”
- Martin Bikhit, Managing Director at Kay & Co, says “The increase will be severely damaging to houses with values around the £1,000,000 mark. It will become increasingly difficult for sellers to achieve prices between £1,010,000 and £1,050,000.”
Other issues caused by the new rules
- Quest, a technology provider in the survey and mortgage valuation market believes the new legislation brings due-diligence issues between lenders and solicitors. James Sherwood-Rogers, MD, said, “Any steps to stimulate the housing market and encourage the return of first-time buyers are clearly a welcome move at this time. But once again the problem is how, practically, these sound-bite guidelines can be administered and who carries the burden?
“We understand that the first-time buyer (or all buyers if joint purchase) must not have previously owned a property anywhere in the world. Lenders and solicitors were given just 24 hours to cross-border due diligence procedures which currently do not exist. It is now up to the industry to work together in formulating a way in which this can be successfully managed.”
- David Smith, senior partner at Carter Jonas said, “While the property market welcomes any help at the moment, and scrapping Stamp Duty (on properties up to £250,000) will certainly assist first-time buyers and stimulate the market in the short term, what happens when the holiday ends? If anything, these latest measures highlight the need to address the outdated Stamp Duty threshold structure, which hasn’t been updated since Labour came to power. The one per cent to three per cent hike at the £250,000 price level has always been a major cause of irritation amongst buyers, sellers and estate agents alike, but rather than constantly tinkering with the threshold levels, the Government would be better off taking the bull by the horns and undertaking a thorough overhaul of the Stamp Duty set-up. Rushing through another holiday is essentially a short term measure by the Government to curry favour with voters and beat the Conservatives to the punch.”
- Ian Fletcher, director of policy at the BPF, said, “The policy highlights the unlevel treatment of individual and institutional investors in the Private Rented Sector, this policy means the individual first time buyer will not pay Stamp Duty on any investment under £250k, whereas an institution trading in portfolios might pay four per cent Stamp Duty on small flats they are trading, because of the policy of aggregating transactions. Government must act to stop this distortion.”
- Nick Jopling, Head of Residential at CB Richard Ellis, said, “Five per cent Stamp Duty on purchases over £1 million widens the inequality that exists between bulk investors of residential property and individual purchasers. The Government is seeking to attract institutional investment into residential property to kick start development, particularly in areas of most need. This increase in tax will have a negative effect on these ambitions.”
NOTE: 1. 171,000 properties priced between £125,000 and £250,000. Assuming a median of £1,875 Stamp Duty paid, the total cost would be £320,625,00