New figures have shown that half of home buyers in the South East are being forced to pay the higher rate of stamp duty leading property experts to voice their concern that it is becoming a ‘tax on the South’. Many ordinary families have been put off from moving home due to the extremely high levels of tax on the purchase of their next home. Some are facing charges of at least £7,500 according to a report analyzing returns from the Land Registry.
The higher rate of stamp duty was intended for the most expensive properties but now a quarter of all house sales in England and Wales attract this rate. This is due to the variations in property prices and the significant rise in property prices in certain areas of the UK. In London and the South East 50% of house buyers have to pay the high 3% or more rate of stamp duty in relation to the value of their home. Many house buyers are unable to move up the property ladder as a result and many are unable to move to larger homes or start a family.
Homes worth up to £125,000 are free from paying stamp duty but homes worth between £125,000 and £250,000 are eligible to pay 1% tax. Thereafter, homes worth £250,000 or more are eligible to pay 3% stamp duty making it more difficult for many families to get on the property ladder, as this is now close to the average house price in the South. The rate then rises to 4% for properties worth £500,000 or more. In the last financial year, stamp duty brought in £4 billion for the Treasury and £3.6 billion of this is from stamp duty set at the 3% rate. However, more than 80% of this stamp duty was collected from the South of the UK.
Many people are buying modest properties but the rise in house prices has seen even the most modest properties cost over £250,000. Conservative MP for Wokingham in Berkshire John Redwood has stated that home owners in the South are more heavily taxed due to the house price increase and that it is preventing families from moving home or buying new property. In comparison, the £250,000 threshold which was brought in in 1997 is now the equivalent of a £760,000 threshold at today’s prices.
Stamp duty is therefore becoming a “tax on the south”and might discourage potential home buyers in the area from entering the property market. This may also affect property sellers because they will now struggle to achieve a fast house sale.
Therefore the current stamp duty status may have a negative effect on the whole property market in the south of England. We are currently at risj of finding ourselves in another property bubble which might have been caused by stamp duty. However, increasing the stamp duty threshold will contribute to a fairer distribution of revenue from stamp duty throughout the country but may dissuade first time buyers from climbing onto the property ladder.
Rob Steen is a freelance copywriter who is passionate about property.
He sometimes writes for http://propertybuyer.co.uk