Stamp duty changes for UK property buyers announced yesterday by the government have been generally welcomed but branded as a tax on London and the south east where many buyers will be worse off.
The changes mean that from midnight last night stamp duty for first time buyers on purchases up to £250,000 is scrapped for two years. But it is increasing to 5% for residential properties over a million pounds from April 2011, to its highest level ever.
Critics say that even a fairly modest family home in London and the south east can cost a million pounds and the definition of a first time buyer will mean that many people will not benefit. For example if one of a couple has owned a property they will not be classed as first time buyers in tax terms.
Liam Bailey, head of research at the estate agents Knight Frank, said: ‘This is a tax on London and the South-East. It hits a lot of people who have worked hard, saved their money and they are just trying to buy a family home in the most expensive area of the country. This is not a tax on the super-rich. It is a tax on families in the South of England who need to buy a decent-sized home.’
Official figures show 92 properties were sold every week last year in the UK for £1million or more. During the boom years, the figure was far higher at 170 a week. Most are not palaces, but homes in a part of the country where prices have spiralled to extraordinary levels, with many families now forced to spend £ 1million on a four-bedroom home.
Chancellor Alistair Darling said the change will help nine out of ten first time buyers who still find it hard to get a mortgage. But not everyone agrees with Darling’s numbers. According to Martin Ellis, housing economist at the Halifax it will help an additional 40% of first time buyers, somewhat different from Darling’s nine out of ten.
There are also concerns that the system could be open to abuse in terms of defining a first time buyer. According to HMRC, to qualify for the relief the buyer must not have previously acquired a major interest in residential property including a previous foreign property purchases.
The first time buyer definition also rules out companies, partnerships or trustees so parents looking to set up a trust to own a property for their children would not qualify and it is not clear whether a person who has inherited a property would be considered a first time buyer.
The Council of Mortgage Lenders (CML) said under its own definition first time buyers typically included a high proportion of ‘returners’ who had previously owned property but no longer did so.
By the HMRC’s rules, these buyers would be exempt from the relief.
Karen Campbell, head of stamp taxes at Grant Thornton, said the relief was likely immediately to fall into difficulty as there was little clarity about how to establish whether a person was a first-time buyer, which could encourage abuse.
‘Some people will try to cheat the system. It is likely to bring about both avoidance and evasion. It would be easier to open the relief to all buyers,’ said Ray Boulger of brokers John Charcol.
Many in the property industry said the government had missed an opportunity to reform the whole system to make it fairer. The Royal Institution of Chartered Surveyors, the National Association of Estate Agents and the Building Societies Association are all calling for reform that means a tax that is not based on price as it is inherently unfair.
‘The current slab structure, where a higher rate applies to the whole value of a transaction, should be replaced with a marginal system similar to income tax. This would smooth out distortions in the market and can be done on a revenue neutral basis. The Government should also consider reshaping the tax by introducing a new band for higher value properties,’ RICS said.