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Budget 2010 - Stamp Duty Changes

In today's Budget the Chancellor announced changes to Stamp Duty levels as outlined below in The Times

The report in The Times states "Buyers of homes worth more than £1 million will be hit by a new higher rate of stamp duty of 5 per cent from next year to fund a temporary scrappage of the tax for first-time buyers, the Chancellor said today.

Alistair Darling said that he would use extra revenue from sales of the most expensive properties in the country to fund a simultaneous increase in the lowest threshold for stamp duty of 1 per cent from £125,000 to £250,000 for the next two years to help first-time buyers.

At present buyers of homes worth more than £500,000 pay a rate of 4 per cent.

On a property worth £1 million, the stamp duty bill will rise from £40,000 to £50,000 from April 2011.

For a first-time buyer of a home worth just under the new 1 per cent threshold of £250,000, the bill will fall from £2,500 to £0.

An estimated 10,000 to 15,000 buyers of £1 million-plus properties will pay the higher tax rate each year, based on Land Registry figures.

However, the concession, to be introduced for any purchase completed from tomorrow and before March 25, 2012, will apply only to first-time buyers. Home movers who are buying a property less than the £250,000 threshold will not benefit.

The definition of a first-time buyer will be someone who has never previously bought a property.

The move will be viewed as another tax on bonus earners and cash-rich investors, who have dominated the top end of the housing market for the past year.

The impact of the tax is expected to fall disproportionately on buyers in London and the South East, where 81 per cent of properties worth more than £1 million are concentrated.

Nicholas Leeming, commercial director of Zoopla.co.uk, said: “Taxing the rich makes a good headline, but it won’t raise much money for the government’s fiscal black hole.

"Only around 3000 homes sold above the £1 million mark in the last year.

"With the total stamp duty tax take reaching almost £3 billion last year, this measure will contribute only roughly 2 per cent extra tax, a tiny amount. Raising stamp on £1 million homes is a cynical move by the government to tax home buyers who tend not to be their core voters. The burden will fall overwhelmingly on London and the South East.”

The extra relief at the bottom end of the ladder will apply for the next two years and could benefit around 450,000 homebuyers a year, based on the number of sales below £250,000 last year.

Around 65 per cent of property will now be exempt from stamp duty, according to industry estimates.

Mr Darling said: "The housing market is now stabilised.. but first-time buyers still find it hard."

The stamp duty holiday on properties worth between £125,000 and £175,000, which ended at the end of December, helped around 260,000 buyers, the Chancellor said.

Housing market experts welcomed the threshold increase, but said it would be of limited use for first-time buyers who are struggling to raise a deposit.

Housebuilders welcomed the move as a boost to the industry, which has struggled to sell homes to first-time buyers for the last two years.

Melanie Bien, director of Savills Private Finance, the mortgage broker, said: "'We welcome the doubling of the stamp duty threshold for first-time buyers to £250,000, which should make a significant difference to the majority, who are struggling to get on the housing ladder. But while every little helps, they still need to raise a sizeable deposit to buy their first home.

'Raising the top rate to 5 per cent over £1 million to fund this tax break simply underlines just how unfair the stamp duty system is because it is not tiered. A root-and-branch reform to make it fairer remains long overdue.

"It is at the top end of the market where the majority of transactions have been taking place, supporting the housing market. This may make homeowners think twice before moving.'

Ian Fletcher, director of policy at the British Property Federation, said: “Greater relief from stamp duty will be a confidence boost to the housing market, helping to ensure the housing recovery does not stall.

"It will be of limited value to first-time buyers, however, who typically are having to find a deposit of £33,000 at present. Raising the threshold will effectively knock 18 months off the 18 years it would take the typical 25-year-old to save a £33,000 deposit."

Wealth advisers said that the extra tax at the top end of the ladder would not dissuade people from buying homes worth more than £1 million, but may encourage them to investigate tax avoidance schemes.

John Hornby, real estate partner at Macfarlanes, the City law firm, said: "This alone will probably not deflect the high-net-worth individuals who have underpinned the strength of the Prime Central London market.

"It is not out of line with top stamp duty rates on the Continent; however, increases always prompt people to look more closely at SDLT [Stamp Duty Land Tax] saving schemes."

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