Assetz® News - Stamping on it

Stamping on it

1st July 2008 |

Stamp duty has been a hot potato for some time now, as those hoping to make homes more affordable, particularly for first-time buyers, have called for the burden to be eased in response to rising house prices.

Although prices are now falling, the call has remained, with first-time buyers faced by higher mortgage costs as a result of the credit crunch. The matter has become a political one, with the government coming under pressure for change not just from various stakeholders in the property sector but also the Conservatives, who announced a new policy last year to exempt first-time buyers from stamp duty if the house they are buying is worth under £250,000.

Today a whole range of ideas were proffered by the Royal Institution of Chartered Surveyors (Rics). Claiming that the current system is "no longer fit for purpose", a key proposal was to switch the "slab" structure of the tax with a "marginal" one. So instead of paying the percentage of the full value of a property valued above the lowest band, only that proportion of its value that lies above the threshold will be taxed at a higher rate. As a result, the body said, the cost of a home bought at a price just below a threshold would not have to rise by as much before the owner could sell it on at a profit.

Rics suggested that under this system, there would be no charge up to £150,000, a 2.5 per cent levy above that point and a five per cent charge of the value that lies over that amount.

Property investors will also be affected by the Rics proposals, which stated that there is an inequality that penalises those with larger portfolios relative to single-property buy-to-let landlords. This is because at present the larger landlords have to pay stamp duty on the bulk of their properties. Rics is advocating charging according to the average value of the properties bought.

Other organisations have also called today for stamp duty to be curbed to boost property buying. The Association of Home Information Pack Providers is one of them, calling for a suspension of the levy on all homes worth under £200,000.

Another firm to make representations is Badger Holdings, which owns a portfolio of property companies. As well as suggesting stamp duty holidays for first-time buyers, its idea to create greater flexibility in charging is to add more bands to increase payment. Other ideas include Bank of England-backed flexible mortgages for first-time buyers.

Badger's badgering has certainly gone to the top, with the Surrey-based firm stating that it has sent its proposals to prime minister Gordon Brown, chancellor Alistair Darling, housing minister Caroline Flint and its local MP Philip Hammond, who happens to be shadow chief secretary to the Treasury and therefore in a strong position to push the case for change.

Those who seek alterations to stamp duty as a way to reinvigorate the property market may be disappointed. Knight Frank has admitted that its calculation of the effect of its proposals would be to reduce the Treasury's stamp duty revenue in the 2008-09 financial year by up to 24 per cent. Mr Darling may consider that the tightness of the present public finances may not allow scope for what is in effect a tax cut.

However, without a move to boost the property market the government could lose out in stamp duty revenue anyway, with the Liberal Democrat's Treasury spokesman in the Lords, Lord Oakeshott, estimating a drop of £5 billion as a result of falling sales and prices this year alone.

Therefore it may yet be possible that, faced with the need to kick-start the housing market and increasing political pressure as the next election starts to loom on the horizon, some of the ideas suggested to ease stamp duty burdens could yet be adopted.