March 18th, 2014
Data pooled from the property search website Zoopla shows that over the past two years many sellers have been forced to reduce the value of their homes, in order to make the sale that allows them to make a move to their next property. The slab system, favoured by the Government, is suggested to have attributed to just -under 40,000 property sales made during this period being knowingly under-sold to negate a higher threshold being reached.
At present, the stamp duty system incorporates value markers where the percentage charged increases by increments, solely based on the value of the property. It has often been noted by many market commentators that this system does not help a large proportion of the market. The sudden leap to a 3 per cent charge from 1 per cent, once a property is purchased above the initial £250,000 marker, has prevented a swath of sales being made for true market value.
The figures compiled by Zoopla evidence that it is rare a property sold at a price just above a threshold, with the annual estimates for the £250,000-£260,000 bracket way off the expected level for the period. It was assumed that between April 2012 to December 2013, 41,090 sales would be made between these levels. As an increase of £1 to a property valued at £250,000 would mean an increased charge of £5000 in tax, it is perhaps no surprise that only 15,981 property sales were made where a higher percentage of tax was due to be paid.
Many market experts feel that the current system distorts property values, and is in some cases preventing those looking to move from purchasing a more expensive home. The figures show that some sellers are losing as much as £7000 from a sale, which then impacts the ability to cover the cost of the next deposit, and if buying above the next threshold, the ability to meet the increase in stamp duty liability to complete the next move.
From Zoopla, Lawrence Hall commented: ‘The current stamp duty system distorts the market and prevents thousands of sellers from achieving the full value of their property when they come to sell. Over the last few years buyer budgets have been squeezed by low savings rates and the high cost of living and this has left buyers less willing to pay the extra stamp duty levied on properties just above stamp duty thresholds.’
Surveying groups have commented on the matter, as The Royal Institution of Chartered Surveyors has proposed a fairer system to replace the current process. The head of UK policy at RICS, Jeremy Blackburn, noted that the upcoming budget this Wednesday will provide a true sign of the Chancellor and the Governments plans for economic policy in the lead up to the next election.
Blackburn stated that, ‘This is a very important Budget for the Chancellor and one which will shape the economy in the run-up to the general election.
‘A major area of concern in the property sector, at present, is the current stamp duty system which is both out-of-date and distorts the market by taxing buyers disproportionately high amounts should they go just one pound over the pre-set thresholds. A more intelligent, modern way of taxing property sales is needed for a market which is changing at a rate of knots.’
With Wednesday’s budget session looming, there are no apparent signs that the chancellor George Osborne is considering a revamp of the stamp duty process. This is perhaps no surprise, when details provided by HMRC’s Ready Reckoner, show that a reduction from 3 per cent to 2 per cent for properties, between the values of £250,000-£400,000, would cost the Treasury in the region of £1 billion in annual taxes.
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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