Stamp Duty - The Worst Tax

wisbech_lad

Agree. Take away stamp duty, and remove the CGT exemption on principle place of residence. So you pay CGT on the profit (after taper relief etc) that you make on selling.

andyrules

Years ago stamp duty was set at £60.000. The price of a decent semi in our area was around £13,000, so it doesn't take a genius to work out that it was the very affluent and not Mr & Mrs Average who were affected. I seem to think that after the 1980s boom, which pushed up a bog-standard property to over £60,000, it was some time before the tax was raised to the current rate. However, except for the cheapest stock (largely owned by property developers round here), most ordinary folk are still subject to this burden.

Poppycat and benood have both hit the nail on the head.

Spicyhotone_2

I think there is a fundamental problem in taxing people when they buy a house. It seems unfair, and it doesn't reflect the money people have made from their previous sales.

My suggestion would be to abolish or reduce stamp duty and replace it with a CGT (Capital Gains Tax) liability, something along the lines of:

Stamp Duty : Flat 0.5% rate on purchase price by buyer. There would be no fee to pay to the Land Registry - their costs would be drawn from this tax income. It seems fair enough that the buyer pays towards the administrations costs of the Land Registry updating their records.

CGT : Paid by the sellers at their normal tax rate on any profit made on the sale of the property. Currently your main residence is exempt from this taxation, which means that many people have used it as a very tax efficient investment, which is good for them, but ultimately bad for society as a whole as it pushes up house prices artificially high. By introducing CGT you can help reduce this effect. My suggestion would be that their is a sliding scale, so the longer the house has been owned, the less tax you pay. So say:
Owned 1 year : 100% liability
Owned 2 years : 90% liability
:
5 years : 50% liability
:
10 years : 10% liability
11-14 years : 5% liability
15-20 years : 1% liability
>20 years : 0% liability

People would still get their normal CGT allowance to put against this (£9000 mark I think), and a couple could use both theirs, so around £18000.

So some examples of the costs of selling your house to buy a new one (or bank the profits) :
1) Mr & Mrs Jones buy their house in 2001 for £180,000 and sell again in 2006 for £420,000 and buy a new house for £420,000.
Current system : Stamp duty £12600 + L.R fee £300 = £12900
New system : Stamp duty £2100 + CGT £44,000
Profit=420-180K=240K - Allowance £18K = £222K
Owned 5 years, so 50% liability = £111K
Tax rate 40% = £44,400

So a big tax on the Jones'. But this would have the affect of seriously reducing house prices, which although painful for all those with large paper (bricks?) profit, would, I believe, be ultimately beneficial for society as a whole.

2) Mrs Widow. Bought her house in 1970 for £1000 and sells it in 2006 for £650,000 and she's moving to a nice bungalow by the sea costing £260K.
Current system: Stamp duty £7800+ LR fees £300 = £8100
New system: Stamp duty £1300 + £0 CGT = £1300
CGT is 0% as the house has been owned for > 20 years

So Mrs Widow benefits.

3) Mr Flipper. Buys a house for £250K in 2005 and sells for £330K in 2006 and banks the profit.
Current system : No tax (assuming it's his main residence)
New system : No stamp duty + £28,400
Profit=£80K - Allowance £9K=£71K
Owned 1 year so 100% liability
Tax @ 40% = £28,400

So this would strongly discourage the use of property as a short-term tax efficient investment scheme, and help reduce one driver for rapid house price inflation.

OK, so this is probably not a perfect solution, but I don't think any taxation scheme ever will be, but I believe it would help reduce the artifical hyper-inflation of house prices that we regularly see in this country.

Mr Spicy.

courtjester

See my earlier post on 15/12 on this subject:

http://forums.moneysavingexpert.com/showthread.html?t=328843

Stamp duty over the £250,000 threshold now stands at £3.4 billion as a revenue earner for Gordon Brown, so don't think he or any later government are going to rejig the system to be 'fairer', when they are raking in such massive amounts behind the public's back. A classic stealth tax.

Had the thresholds been adjusted in line with inflation, the £250,000 threshold set in 1997, would now be at £650,000.

If nothing is done to adjust the thresholds or rates, the revenue the government collects from stamp duty will triple by 2020, whilst giving politicians the opportunity to claim they haven't raised tax rates.

Alan_M_2

I agree with courtjester, if the thresholds were raised all those billions would need to be found elsewhere.

Stamp Duty was designed to be tax on the affluent but erosion has allowed it to become the tax on everyman, it is punititve and whats fair and what isn't fair has nothing to do with it.

Another obvious waste of money along the same line is road tax, it should simply be abolishd and added to fuel, you use the road more, you pay more duty. Whay won't they do that? Because the job losses would decimate Swansea.

I also believe that your insurance certificate should be issued in a similar fomr to the tax disc and you be require to disply that on your windscreen instead.

Gorgeous_George

CGT is unworkable on your main residence as it would prevent people moving house. I bought my last house for £60.5K in 1999 and sold in 2003 for £137.5. A paper profit of £77K with a potential CGT burden of approximately £28K. However, my current house cost £154.5k and I needed to fund the £17K difference in addition to solicitor's fees, EA fees and Stamp Duty. A total of at least £22K.

Where was the capital gain? I was £22K down.

If CGT was to be introduced on prime residences, I suggest it should not be payable when buying another house.

What about the costs of repairs/improvements that would normally be off-set against CGT? Sounsds like a paperwork nightmare.

Would losses be able to be offset against other gains?

I accept that we have to pay taxes and I have my own ideas of a fairer system than SD and Council Tax.



GG

Hereward

Spicyhotone, your solution to the stamp duty issue would not stop property inflation as demand for 5 bed houses would go through the roof (as nobody would want to move up the property ladder), while the price of starter homes would plummet as why would anybody buy a property where they face a 70%ish tax on the capital gains, just so the could have a slightly larger house.

Gorgeous_George

Two problems with Stamp Duty, even Martin's proposed Stamp Duty, are that it is based on house price and only payable when you move house.

For example
Someone buying a house in an expensive area is already being asked to pay a higher price for his/her house than someone buying a similar property in a less affluent area. Additionally, they pay more VAT on the Estate Agents fees. Why should they be penalised further by paying more Stamp Duty?

The solution could be to base SD on the size of the house and the land that it occupies. The size of the house could be measured by floor area or by volume. the land it occupies, quite obviously, is the area within its boundary. This tax would be payable every year and therefore a lower sum but would not be linked directly to house prices. The exchequor would have a constant and reliable income for planning purposes.

A similar system could be used for calculating council tax and both taxes could be collected together. Council tax would remain variable by area depending on the services provided.

This would seem to me to be a fairer system. It would be paid by all (including those who rent - stand back and await attack - and those who do not move home). People would be encouraged to live in smaller houses rather than hold on to much larger homes thereby reducing the pressure on the housing market.

Sure, there'd be winners and losers but...

I commend my motion to the house (erm, forum).



GG

Hereward

Gorgeous_George wrote:

...The solution could be to base SD on the size of the house and the land that it occupies. The size of the house could be measured by floor area or by volume. the land it occupies, quite obviously, is the area within its boundary. This tax would be payable every year and therefore a lower sum but would not be linked directly to house prices. The exchequor would have a constant and reliable income for planning purposes...

Interesting proposition, but how will it work for flats/apartments as the building footprint for this type of properry can be quite large when compaired the the property size.

Gorgeous_George

Hereward wrote:

Interesting proposition, but how will it work for flats/apartments as the building footprint for this type of properry can be quite large when compaired the the property size.

I would expect the footprint to be shared by the block of flats when calculating land area. Property volume would be calculated as before and any shared ares - such as gardens - would also be shared.



GG