I should say that what follows is in no way political and that I am writing this from the perspective of a property professional. That disclaimer out of the way…!
In Budget 2010 today, the Chancellor, Alistair Darling, announced that the Stamp Duty threshold for First Time Buyers would be raised from £125,000 to £250,000. Therefore, any first time buyer purchasing a property up to £250,000, in the next two years, will not pay any Stamp Duty on it, starting from midnight today.
I think that this can only have a positive effect on the property market in Scotland (and of course in the UK), as we saw during the last period of Stamp Duty ‘holiday’ where the threshold for Stamp Duty was temporarily raised from £125,000 to £175,000.
However, I have a couple of major criticisms of this change to the Stamp Duty regime.
First, it is completely discriminatory against people who already own a property. It seems perverse that a First Time Buyer will pay no Stamp Duty on a property of £200,000 and yet a family, struggling to move out of their 2 bed £120,000 flat to a £200,000 semi-detached house will have to pay around £2000 in Stamp Duty. Given current, tighter mortgage criteria, a First Time Buyer who wants to buy a £200,000 property will probably need a £50,000 deposit to get a decent mortgage rate. That buyer will also probably need to be earning between £40,000 and £50,000 per year to get that good rate. This is precisely the kind of person who probably doesn’t need the tax break as much as the family whose finances are already stretched by having a child and who want to move out of their top floor flat into a semi-detached house. For them, the tax break could help them to scrape together the deposit that they need to move.
Second, it ignores the fact that the Stamp Duty bandings are completely unfair in the first place. Property prices have almost tripled in a decade and yet, not surprisingly, the Stamp Duty bandings have hardly changed. When they were introduced, £501,000 represented a MASSIVE property in most parts of the country and therefore a 4% tax on purchasing such a property was justifiably seen as being a tax that affected mainly the super-wealthy. Now it isn’t. Is it therefore fair that a first time buyer can purchase a property of £249,000 without paying any Stamp Duty and yet if they purchase a £260,000 property they have to pay 3% tax on the purchase of that property? Personally, I don’t think so. I think that all of the Stamp Duty bandings need an overhaul to make them fairer. This latest measure in the Budget is a sticky plaster.
Third, it seems to be aimed squarely at gathering votes in the south east of England. My company is based in Edinburgh which along with Aberdeen has the highest average property price in Scotland. Even so, the average price of a property in Edinburgh is around £200,000, which means that the majority of Edinburgh’s housing stock will now be stamp duty exempt for first time buyers. In other words, most of Edinburgh’s housing stock is not actually first time buyer territory, price-wise, even though this tax break is apparently aimed at making the property market fairer for first time buyers. It’s hard not to see this as being a policy that is aimed at young professionals in the south east of England who would most probably have been voting Conservative at the next election prior to this latest policy maybe making them think twice.
Fourth, how on earth do you prove that you are a first time buyer? Particularly if you are a buyer from overseas. Or, to put it another way, how on earth is Her Majesty’s Revenue and Customs going to police this policy? Stamp Duty liability is first and foremost down to a declaration by the buyer that they owe Stamp Duty in the first place. The buyer’s solicitor usually fills this declaration in and then sends it to HMRC on behalf of the buyer. Is there not going to be a HUGE temptation for many buyers to declare themselves first time buyers to avoid paying nearly £8000 in Stamp Duty? This puts a large strain on solicitors too as they have to rely, more than ever, on the honesty of their clients in making these declarations. How on earth is HMRC going to police this?
Fifth, what happens where a couple is buying the property jointly and one of them is a first time buyer and the other one isn’t? I foresee this policy leading to increasing numbers of properties being bought in one half of the couple’s name to avoid the tax which will then, of course, cause huge problems around legal ownership if the couple ever splits up.
Sixth, what on earth is this going to do to the value of properties that are around the £250,000 level? Prior to this change, buyers paid 1% Stamp Duty for a property of £250,000 but 3% for a property of £251,000. So, if your property is worth £265,000 on the face of it (i.e. it’s got an extra bedroom compared to the £240,000 property that sold last week in your block), you were already previously struggling to get many buyers who want to pay any more than £250,000 for it. Which lead to an artificial compression of prices around £250,000 and a distorted market. Now it’s even more extreme. Previously, the difference in Stamp Duty payable between a £250,000 property and a £251,000 property was around £5000. Now it’s £7500 (if you’re a first time buyer, of course!). This can only lead to even more properties being artificially pushed below the £250,000 mark. How much over £250,000 is a property going to have to be worth before people don’t even think, ‘I’m not paying a penny over £250,000’ so that they can avoid paying nearly £8000 of Stamp Duty?
In conclusion, as the owner of a company that benefits from a property market that has healthy transaction levels, you’d think I wouldn’t be against any initiative that would help on this front. However, I think this Stamp Duty measure only papers over huge cracks in the existing system which continues to be hugely unfair for anyone, particularly families, who wish to move home. It favours young professionals who already have larger amounts of disposable income. All of which makes it appear to be a hugely politically-motivated move by the Labour Party (and I’m sure that the Conservatives would have done exactly the same: as I say, this is not a political statement!) just before a General Election. It also of course shouldn’t be ignored too that people purchasing properties over £1,000,000 now will pay 5% Stamp Duty rather than 4% as they currently do, in order to fund today’s ‘cut’. The Stamp Duty regime remains unfair and it would surely have been preferable just to overhaul the Stamp Duty bandings altogether. But then that’s not quite the same vote winner, is it?!