Prospective House-buyers in the capital are set to confront a 36% jump in their stamp duty bill within the next two months, as house prices loom ever closer to the 4% property tax threshold.
Once the cost of the average London residence cracks the £500,000 mark, the stamp duty boundary increases from 3% to 4% on the price paid to procure the house.
The price of a London home rose 20% over the year up to May and currently stands at £492,000. Under the current 3% stamp duty bad, a buyer would lose out on £14,760 in tax. However, a mere increase of 1.7% to £500,364 would result in a stamp duty charge of £20,014, up 36%.
The cost of houses in the UK has been escalating at an unprecedented rate this year, with much tension being generated due to the Bank of Englandís governor, Mark Carneyís, recent warning that spiralling house prices could tip the economy back into recession.
However, home-owners and prospective house-buyers in the regions have reason to feel disgruntled, as fresh data from the Office of National Statistics (ONS) shows that house prices in London are 2.2 times more expensive than homes in other parts of the country. The average house price, when London is not considered, reached £223,000 in May, far below the 3% threshold.
“These figures [London house prices] are extraordinary for a city average,” said Adam Challis, head of residential research for JLL. “We need to see a robust Government response on the supply programme as current prices are a deterrent to international businesses settling in London which is fast become one of the most expensive cities for employees.”
Rory Meakin, research director at the Taxpayerís Alliance, the organisation responsible for the amassing of the above figures, launched a scornful tirade against stamp duty itself: ì”House prices are rising rapidly in London and because of its ludicrous structure buyers’ stamp duty bills are rising even faster.î
ìStamp duty gets in the way of homeowners who need to move home for whatever reason as well as first time buyers trying to get on the housing ladder. Ultimately, stamp duty is indefensible and should be abolished but if ministers are reluctant then a meaningful cut is they least they should do to ease the burden.”
With the pending breach of the ‘£500,000 threshold’, the government stands to profit substantially, with the treasury set to receive £85m in taxes just from the 1% increase in stamp duty banding, according to research from estate agents JLL. This amount does not take into account the extra tax which is likely to be acquired from regional houses breaking the 3% stamp duty banding.
Adam Challis said: ìAs properties move into higher stamp duty levels, the increasing cost of moving can act as a brake of transactions,”
ìAverage families will see more value from extending existing homes than moving to a new property. This may be good news for the Treasury, but it is a big problem for activity in the housing market.
Stamp Duty has come under criticism since its inception, due to, what is widely perceived, as its poor structuring. There are five bands numbered at 1%, 3%, 4%, 5% and 7%. When one band is broken, whether by £1 or £99,999 ñ the tax paid on the property is the same.
These tax bands have warped the manner in which prices are set, with buyers extremely wary of various thresholds, due to the thousands of pounds at stake.