George Osborne recently announced sweeping changes to stamp duty. He claimed 98% of buyers, particularly first-time buyers and low and middle-income families would benefit financially. But now professionals in the property business believe the reforms would not benefit first-time buyers in the long run. The widely held view is, like all property taxes, these changes to stamp duty will very likely be quickly reflected in house prices. This tax saving will allow first-time buyers more money to put towards their property and with all buyers in the same situation, prices would rise accordingly.
The industry thinking is the stamp duty changes will add around 1% to house prices. As stamp duty is normally paid in cash and higher property prices would add to the buyer’s mortgage, that they would pay more in interest. Some allegedly take the view that the Chancellor was trying to engineer a mini house price boom just before a general election without considering peoples’ indebtedness.
How has stamp duty changed?
Under the old “slab” system, house purchasers had to pay their relevant rate on
the whole purchase price. Previously stamp duty started at 1% on sales from £125,000 to £250,000, rising to 3% on sales of up to £500,000 and 4% on homes costing up to £1m. Houses that sold for between £1m and £2m attracted 5% tax, rising to 7% for houses worth more than £2m. Under this system a family buying a house for £400,000 would have to pay 3% on the whole sum, or £12,000.
House prices are expected to rise as sellers cash in on the stamp duty savings
The new stamp duty will consist of “marginal” tax rates, as with income tax. There will be no tax on the first £125,000, then 2% on the cost between £125,000 and £250,000, and 5% up to £925,000. A rate of 10% will apply to the cost between that sum and £1.5m, and 12% on the value above £1.5m.
Now buying a £400,000 home they would pay 2% on the portion between £125,000 and £250,000 and 5% on the remaining £150,000. This reduces their total tax bill to £10,000.
Stamp duty bills will rise for purchases worth more than £937,500. This is likely to affect buyers in London and the South East most, where prices are much higher.
Many typical aspiring home owners have been hit hard by the combination of stamp duty and rising house prices. People in London know this all too well, many have tried to buy in earlier years but were unable to make their budget stretch to cover the stamp duty.
Such examples are common place. Many first time buyers find their dream property at the top end of their budget, but are all too often unaware of stamp duty and find themselves unable to afford this additional cost, leaving them no option but to pull out and lose their dream home.
Many people who are looking at properties in more affordable areas of London are grateful for the reduction in stamp duty, but fear that if house prices rise further they will be priced out of the market.
But it’s not all bad news for first-time buyers. Those already in the process of buying will save money. Typically someone buying a £175,000 house will see their stamp duty cut from £1,750 to £1,000
Need more help?
This feature aims to give some informal hints and McPhersons are offering small businesses free advice so get in touch now to arrange your free meeting 01424 730000.
McPhersons Financial Solutions c/o 50 Havelock Road, Hastings, East Sussex TN34 1BE T: 01424 730000 F: 01424 457080 E: email@example.com
Registered Address: Suite 1, 4th Floor, International House, Dover Place, Ashford, Kent TN23 1HU Registered in England No 5027747
Mcphersons Financial Solutions is a trading style of Absolute Financial Management Ltd which is authorised and regulated by the Financial Conduct Authority