Why the new stamp duty regime is very welcome

In the latest Autumn Statement, shortly after George Osborne’s classic Wallace and Gromit gag, George pulled what the policy makers hope is a magic white rabbit out of the hat. In reforming the stamp duty regime the conservatives have played a clever card with little more than 5 months until the General Election, the changes were long overdue and will appeal to a decent chunk of the electorate while also quelling some of the calls for Mr Balls’ mansion tax.

But what do these changes actually mean for the average homeowner and the property market as a whole? As we highlighted in a previous post, the old system was slightly archaic and charged increasingly higher rates at set thresholds on the whole price, thus creating a rather clunky system. The new regime works more like income tax and only charges the different rates of tax on the threshold to which it applies. To help illustrate this (and because we love a good graph) we have put together the chart below to show how much stamp duty you pay in the new regime compared to the old one.

New vs Old Stamp Duty

For anyone hoping to find vast tax savings here then I am sorry to disappoint you, but it should come as some relief that the Treasury has done its maths properly so that the new regime tracks the old one as it moves up the thresholds. For the average homebuyer in the UK this will result in a saving and it is only at the higher end that property buyers will start being worse off.

The immediate response from the opposition is that this will only serve to further boost an already positively buoyant property market. In our opinion, however, this is just classic political scaremongering. The highest saving that will be made is £6,200 (on purchases just over £1m) while the average property price of £273,000 will see a saving of £4,540. It is not unreasonable to expect that this “saving” will lead to buyers being able to bid slightly higher by the equivalent amount, but at the average property value this would only result in an increase of 1.7%. At the top end, where the truly mind-boggling prices are paid, the new regime is punitive towards paying anything over £1,125,000 and should help quell this end of the market. On average, therefore, the housing market will not change significantly and at the affordable end of the spectrum there may be a short-term small jump up but not of any significant proportion.

So why bother then? Well, political positioning aside, the new regime creates a fairer and more balanced property market. The will be no more pricing dead spots, asking and offer prices will now be based on value, not on squeezing in under a threshold. This may not seem significant to some but it is in everyone’s interest to have a property market that is free from intervention and irregularities. It may even benefit the Treasury to make the system less punitive so that more housing transactions are encouraged and these changes may go a small way to achieving this.

It would have been naive to expect any tax cuts in this respect and the stamp duty announcement is tax neutral in that respect. There are many who still think the overall cost is to high and not linked to inflation etc, but given the state of the public purse it is ridiculous to realistically expect any reduction here. Nonetheless it comes as a welcome surprise to the property market and could only be implemented as a surprise (coming into force at midnight on the day of the announcement) to avoid anticipated changes causing a sales rush or hold up (depending on which end of the spectrum you are at).

Well done George, next up is VAT!

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