While fielding questions at the Royal Institute of Chartered Surveyors annual residential conference, housing minister Mark Prisk stated that the Government has not yet set a timescale to reform the stamp duty process. Prisk admitted that the current process of “slab” charging tends to be unfair in most cases, but said it would be problematic to “get a better balance of winners and losers”, while still maintaining the same level of revenue.
The “slab” structure refers to the fact that stamp duty is always charged at the highest rate for the whole of the purchase price, with no waivers provided to paying the levy on the portion below the threshold. An alternative solution which has been raised by the Council of Mortgage Lender’s, is to charge a marginal amount against the part of the purchase value that exceeds the threshold.
At present, anyone buying a property over the value of £350,000 would be expected to pay 3 per cent of the whole amount, so £10,500. Under the newly proposed system, the 3 per cent would only be chargeable on the part above the £250,000 threshold; so for the £99,999 the levy would be £2999 if the Government maintained the present system of charging.
Although the initial response would likely be that this creates a vast drop in revenue, the CML have also suggested that the by doubling the charging rates, the shortfall would be decreased. For example, if the above transaction was subject to a 6 per cent rate, the cost would be £5999.
But any changes appear to be a way off from approval, as Prisk commented on the matter: “It is quite difficult to get right, especially in a market that has been rather fragile in the last couple of years. But it is a distortion that I am well aware of and I know the Chancellor is well aware of. As to when we feel is the right moment to do it in the market, that we have not yet taken a decision on.”
It would appear that the subject of stamp duty is currently a major point of policy for the Government, as details within a paper authored by MP’s James Morris and David Mowat raised the subject of allowing first-time buyers to be exempt from paying the levy. The paper, dubbed the Forty Group paper as forty Conservative MP’s have backed the plan, would see sellers footing the bill in an attempt to allow more first-time buyers access to housing.
A key statement from the report states that, “The current situation whereby the obligation to pay stamp duty falls on the buyer should be reversed so that it is the seller who pays the duty. While little would change in terms of property value as the seller would pass on the cost of the duty in the final selling price; there would be benefits through the implementation of this simple swap.”
The crux of the MP’s argument is based on the claim that sellers are often in a more stable cash flow position as they will have received funds from the sale of their property. They suggest that this would improve market activity, but did concede that sellers would need to bear in mind where their property fell within the stamp duty tax band when marketing their property. The potential effect of this would be a slight drop in house pricing, as many would look to reduce the cost involved.
The plan has been billed as a “moderate manifesto” for the Conservative party to position within the lead up to the next election. However, David Cameron has spoken positively of the report, and it could form a larger part of the party’s plans if the market appears to be amenable to the plan.
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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