Thursday, 12 October 2017

Role reversal:stamp duty costs make it harder for first-time buyers to get on the property ladder - so what if sellers paid instead?

Paying £10,000 in stamp duty can put an average first-time buyer London home out of reach for many. The Government won't be scrapping stamp duty — but it could be done differently.

The capital’s housing market offers Londoners a raw deal. First-time buyers have to stump up an average £409,000, according to Halifax, Britain’s biggest mortgage lender.
That means that in addition to finding a minimum £40,000 deposit and at least £2,000 for legal and mortgage fees, they are also hit with a stamp duty bill for more than £10,000.
This additional hurdle stops many getting on the ladder. 
The Government introduced a graduated stamp duty system in the 2014 Autumn Statement.
Under this system you pay zero per cent on the first £125,000 of the price of your property, then two per cent on the proportion up to £250,000, five per cent on the proportion up to £925,000, 10 per cent on the next slug up to £1.5 million and 12 per cent on the rest. 
Before the new bands came in, you paid a tax rate on the whole purchase price.
According to the Treasury, the new system helps “98 per cent of those buying their first home, so that more people can achieve their dream of becoming homeowners”. 
Unfortunately for Londoners, stamp duty is based on national house prices, not the market in the capital.
Latest government data shows that 64 per cent of residential housing purchases in England, Wales and Northern Ireland cost less than £250,000. But the high cost of a London starter home means would-be buyers find their first property transaction pushes them into the third tax bracket. 
This means that an average London flat, which costs £467,000 according to Rightmove, comes with a £13,800 stamp duty bill. The average terrace house, at £602,000, generates an eye-watering £20,100 tax bill.
Given these large sums, it’s no surprise that London and the South-East paid nearly half of the £11 billion stamp duty collected by the Treasury last financial year. 
Of course, the Government won’t be scrapping stamp duty — but it could be done differently.
It could be paid by the seller. This isn’t as outrageous as it might seem. After all, it is the seller who is receiving money. Surely it is easier for them to pay the tax, instead of the person already scrabbling around to raise a deposit and mortgage?
Getting rid of stamp duty for first-time buyers would undoubtedly help more on to the ladder. 
As Phil Hall, head of public affairs and public policy at the Association of Accounting Technicians, points out:  “People moving up the ladder would be paying duty on the lower-priced house that they are selling, not the higher-priced one they are buying.”
Simon Gerrard, past president of the former National Association of Estate Agents — now known as NAEA Propertymark — highlights the benefits for the Exchequer, whose “coffers would be buoyed by revenue from the inevitable increase in transactional volume”.
One group would lose out — downsizers. However, Phil Hall adds: “In most cases downsizers will probably have no mortgage and will have significant equity. They’re likely best placed among all homeowner types to pay a little extra — certainly better placed than first-time buyers. 
“It could also be argued that once this has been in place for a few years, downsizers are likely to have benefited from these reforms to have got to wherever they are on the property ladder.”

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