Reducing the stamp duty might sound crazy now, but it’s a bad tax because of the overhaul

Update: The mini-budget stamp duty cut has been announced by consultant Kwasi Quarting, but homebuyers hoping for an overhaul will be disappointed, as I certainly was.

Stamp duty reduction: How much will you pay now and save?

As someone who has been beating the drum for cutting stamp duty for many years, it would be wrong of me not to welcome the news that an ax is about to be collected for this nasty tax.

Yet when reports surfaced that the stamp tax might be a rabbit out of the hat in Liz Truss and Kwasi Kwarteng’s mini-budget on Friday, I thought: ‘What? Why?’

It’s not necessarily the best time to cut stamp duty: house price inflation is in double digits, we’re still recovering from an ill-timed tax holiday that precipitated the pandemic, and the Bank of England is busy raising interest rates to try and do so. Hydration of the economy.

But a bad tax is a bad tax, and if you wait two decades for someone to be brave enough to do something about it, you probably can’t complain about the timing.

Is the stamp drawing about to be cut off?  Rumors of a mini budget cut in the property purchase tax surfaced this week

Is the stamp drawing about to be cut off? Rumors of a mini budget cut in the property purchase tax surfaced this week

There is a caveat to this support, however, that we must learn from the ghosts of past stamp duty vacations and lower the tax on moving home permanently.

Stamp duty is a bad tax because it prevents people from moving into their homes by creating a major hurdle and psychological pain point, thus inhibiting economic movement and helping to calm an already dysfunctional housing market.

It is a peculiar tax on property price gains, paid not by the seller who has made a profit, but by the buyer who must rush them to make use of it.

The unlucky feel the greatest financial pain to buy in parts of the country where it costs more to put a roof over your head, where stamp duty disproportionately affects those areas where home prices are higher (which again, we must repeat, is not a good thing for the buyer). .

It also discourages those at the top of the real estate chain from selling and moving, reducing supply near the top, which then drives up prices all the way up.

Moreover, stamp duty is regressive regionally, since it is already difficult for someone from places where house prices are lower to raise capital to move to another part of the country where they are higher – and then they must find the big hit. Part of the taxes on top of that.

Some of these things don’t make sense. You could easily argue that those in more expensive areas are better able to pay, that the buyer has a set budget including deposit, taxes and other costs and they work on that, and that the real estate economics of tiering don’t work.

However, I would argue that most people do not want to hand over thousands or perhaps tens of thousands of pounds to the government in tax for moving into their homes many times more than they absolutely have to – and so stamp duty is a problem.

I know I would at least move home again if the stamp duty wasn’t so high and I know many individuals and families of my generation for whom this applies.

Stamp duty rates on residential property purchases
Squad House stamp duty rates Buy to let and second homes
£0 – £125,000 0% 3%
£125,001 – £250k 2% 5%
£250,001 – £925k 5% 8%
£925,001 – £1.5m 10% 13%
£1.5m or more 12% 15th%
* No stamp duty payable on property transactions costing less than £40,000 as this is considered to be a low value and is not reported to HMRC.

Stamp fees don’t have to be this high. We managed to live well with a simple 1 per cent stamp duty tax on the purchase of a property until 1997, when Gordon Brown started to step in.

There’s no reason why we can’t admit that experimenting with drawing major stamps was a mistake.

All homes costing more than £60,000 were charged at 1 per cent, and stamp duty was never seen as a major issue or hurdle to buying.

But then – to cut a long, convoluted story – Chancellor Brown cashed in on his real estate boom by adding extra sills, Chancellor Osborne removed the single-panel system but couldn’t resist trying to suck up rich middle-class families and the commuter belt, Chancellor Sunak entered a temporary recess pouring petrol on the flames in real estate market

The problem with trying to turn the stamp duty from a bad tax into one that’s not so bad is that we don’t start in a great place.

Any theoretical homebuyer’s potential profit from the tax cut shifts disproportionately toward those who buy the most expensive homes, who obviously tend to be wealthier. First-time buyers earn very little, because the exemption already takes most of the taxes. This has made making meaningful cuts a tough sell for years.

The home price-to-earnings ratio continues to rise with prices now more than 7 times average earnings, well above the long-run average of 4.5.

The home price-to-earnings ratio continues to rise with prices now more than 7 times average earnings, well above the long-run average of 4.5.

Meanwhile, home prices are at record levels relative to wages, and there is fear that lowering stamp duty will cause them to rise.

However, it is important to note that a lot of the quick reaction to the idea of ​​a cut is based on stamp duty clearances, and a permanent cut is likely to be very different from a temporary cut for a fixed period of time in terms of market distortion.

Lowering stamp duty also risks a dose of push-and-pull economies. The Bank of England quickly raised interest rates to combat inflation, and raised the cost of borrowing to reduce demand and slow the economy. Lowering the stamp duty pushes fiscal policy in the opposite direction.

But there is an argument that reducing the lump sum hurdle to buying a home — in the form of a deposit and stamp duty — while limiting the amount people can borrow through higher mortgage rates might not be such a bad thing.

Keeping a lid on home prices through higher interest rates, while lowering taxes paid to buy a home? I can see people going for it, whether the plan or achievable is something else.

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