© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
Stamp duty has been a nice little earner for the government. As the property market has soared it has brought a tidy dividend in extra billions – £6.44 billion in 2006/07, well over double the £2.69 billion it generated in 2001/02, and nearly twice the £3 billion plus the Treasury pockets from inheritance tax. Estate agents, developers and buy-to-let investors may all have benefited when the market was rising. But the government, while encouraging us to become property owners, was also raking it in.
With stamp duty kicking in over £125,000, a record 60 per cent of first time buyers were hit by it this year. Almost all movers – 86 per cent – were forced to pay it. And these figures from the CML are countrywide. In London, where you’re lucky if you can find a flat below £250,000 and the average home costs £313,000, most buyers have been stung, not by the start-rate, one per cent, but by the next tier, three per cent.
The average London flat owner, once he’s mortgaged himself to the hilt to buy his property, has been paying the government an additional £9,390 solely for the privilege of being a property buyer. When you add that to the other expenses he’s likely to have – removal company costs, solicitors’ and surveyors fees – he could well have to find another £20,000 on top of his deposit, just to move home.
Until this year even shared owners, buying only a percentage of their home, were forced to pay stamp duty if the full market value of their property was over £125,000 – and in London, of course, it invariably is. Only after a prolonged campaign pointing out the absurdity of the government giving subsidies to low-income homebuyers with one hand, then clawing it back via stamp duty with the other, have shared owners finally been allowed to escape the tax until they own 80 per cent of their property.
Buyers hate stamp duty. It artificially inflates what, until this year, was an already a bubble market. And, like all indirect taxation, it hits those worst who can least afford it. So now that the market has stalled and estate agents are selling three properties a month, what should the government do about stamp duty? I mean really do? Not just for the short-term but for three or four years hence when the market recovers. Forget ‘holidays’. Forget tinkering with the levels, or turning steps into thresholds. Ideally, stamp duty should be scrapped altogether.
Okay, as the credit crunch bites property prices may drop by as much as 30 per cent. But that still won’t be enough to make the cheapest properties in London and the south east affordable for people on average incomes. And in three or four years prices will start to spiral again – shortage of land combined with a shortage of housing caused by the building industry’s present collapse will see to that. Stamp duty, as the last few years have proved, doesn’t keep prices down. On the contrary it adds more financial misery to the mix.
Housing is primarily a social need. It may also be an investment, but the government already makes sure we don’t wallow in our ill-gotten gains by taking a whopping 40 per cent slice in inheritance tax. If we’re taxed when we die, why also when we buy? If homeownership is a good – and it is hard to see whatever government is in power in four years’ time backtracking on New Labour’s belief that it is – then any measure that contributes to making it more affordable has to be welcome.
Of course the government will claim, as it does with inheritance tax, that abolishing stamp duty would mean higher income tax or drastic cuts in public services. But in any case the goose is not now laying golden eggs. If the government wants to plug the gap, it could compel the super-rich to pay tax on all those earnings squirreled away in off-shore accounts. Or there are various economies it could make, each of which would save billions – scrap identity cards, ditto SATS, put the ailing NHS computer scheme out of its misery, stop hiring management consultants to duplicate the work of civil servants…
But if the government absolutely can’t detox from its stamp duty habit, how about some radical thinking? Why not recognise that the property market in London and the south east is, and will continue to be, a different creature from the market in lower value areas such as northern England and Wales?
If levels have to be set, in London and the south east they should be adjusted to compensate for the higher cost of property. For instance, if the tax kicked in at £500,000, as some have suggested, even this would penalise families in central London, where ordinary three-bedroom homes routinely fetch far more. Better still, the government could stop thinking of stamp duty as a money-spinner and reframe it as a means of social redistribution. Set the entry level at £1 million, taxing those who can best afford to pay.
One curious feature of the current market is that the uppermost end appears to feel no pain. If buyers are still prepared to fork out over £40 million for Soviet-Neo-Georgian palaces in Hampstead’s Bishops Avenue, higher stamp duty – say ten per cent – is unlikely to put them off. And the money generated by this millionaires’ tax could be ring-fenced to provide much-needed social housing.