Stamp Duty – can you fix Britain’s worst tax?

JimmyTheWig

DVardysShadow wrote: »

As I see it, the aim is to remove the step changes at £125000 and 250000 which make the market very difficult just above those thresholds.

Yes, that goes without saying.
The aim I stated that you quoted is within this overall aim.

JimmyTheWig

Eco_Miser wrote: »

Something like Tax = Rate * (Price - Floor)^exponent

I like it.
But it is way too complicated for the "man in the street". People in general wouldn't know how much tax they were paying without resorting to an online calculator.

JimmyTheWig

galacticwarlord wrote: »

The percentage stamp duty you pay should be the house price / £10m. For example: buying a house for £225k, you would pay 2.25% tax; buying a £585k penthouse, you would pay 5.85%.

I like that.
With the "magic" £10m figure on the bottom it makes it nice and easy to see what you're paying.
Does it matter if it's not inflation-proof? Just means an easy way for governments to increase their tax-take each year!

Would need some serious number crunching, though, to see if it was revenue neutral or not. If not then the £10m would have to be changed right away, which would break the "magic" of it.

thelawnet

I already made a suggestion on this last week:

http://forums.moneysavingexpert.com/showpost.php?p=51959829&postcount=17

galacticwarlord

JimmyTheWig wrote: »

Does it matter if it's not inflation-proof? Just means an easy way for governments to increase their tax-take each year!

Would need some serious number crunching, though, to see if it was revenue neutral or not. If not then the £10m would have to be changed right away, which would break the "magic" of it.

Inflation could be a bit of a problem if you stuck with £10m because 1 year's increase in house price would have the equivalent of 2 years' increase on stamp duty. E.g. a 5% price rise would result in 5% on 5% = 10.25% increase on stamp duty. On the other hand, this would be a force to depress the rise in house prices which might not be a problem right now, but was 5 years ago, and will doubtlessly be again in 5 years time.

As for revenue neutral, no, this would surely be a revenue generator. Only properties between £250k and £300k would pay less - everyone else would pay more. Unless of course it was high enough to put people off moving and sent estate agents and conveyancers to the dole queue...

N1AK

What none of the answers so far have taken into account is that to be revenue neutral you need to account for the % of people paying the different levels of stamp duty.

If 10 people were all paying £1,000 in stamp duty for a cheap house for each person paying £10,000 then a drop from £1,000 to £800 would need to be balanced by the equivalent of an extra £2,000 on the higher rate.

What you'll find is that as most properties don't hit the higher bands a change that saves 0.5% for all cheap houses could need a very considerable increase at a higher level.

I'm no fan of having the current system and a banded system would be better. My own view is that we need to decide what the point of stamp duty is (other than to raise money in tax) and decide whether those objectives are effectively met by the current system.

For example, if I was a rich man who already owned a £4m property in London why pay 5% to sell it. I'll either find a way to avoid the £100,000 tax entirely or rent it instead.

JezR

Any revenue neutral change would create losers as well as winners. Nothing would be heard from the winners, but the losers would moan loudly, or result in others moaning loudly supposedly on their behalf but really for their own benefit even if few if any are not that disadvantaged.

The last budget illustrated that point all too well, and is the reason chancellors usually steer well clear of any tax simplification, fair and sensible that it might seem to an detached or unaffected observer. Unfortunately chancellors do not steer clear in increasing both the number of anomolies and their sizes.

JimmyTheWig

N1AK wrote: »

What none of the answers so far have taken into account is that to be revenue neutral you need to account for the % of people paying the different levels of stamp duty.

Of course. We'd need some serious number crunching with all available data.
I think my suggestion (post #3) aimed at revenue neutral by being revenue neutral at the mid-point of all the current bands.

galacticwarlord

N1AK wrote: »

to be revenue neutral you need to account for the % of people paying the different levels of stamp duty.

This is of course true, but there are difficulties:

1) where would we get figures from which are sufficiently representative? (suggestions welcome - the likes of Nationwide must have them to come up with the oft quoted average house price).
2) provided 1) is surmountable, any current figures would be heavily influenced by stamp duty in its current form and so we wouldn't know how much they would sell for using a rate which wasn't so heavily stepped. For example, there would be no way to differentiate between a house that was worth £265k but had to sell at £250k and one which was only worth £250k to start with.

Personally, I don't see 'revenue neutral' to be such an important aim, it's just easier to sell politically.

JimmyTheWig

galacticwarlord wrote: »

any current figures would be heavily influenced by stamp duty in its current form and so we wouldn't know how much they would sell for using a rate which wasn't so heavily stepped. For example, there would be no way to differentiate between a house that was worth £265k but had to sell at £250k and one which was only worth £250k to start with.

While this is true, I think the effect would be small. Because if you scrap the heavy stepping, there isn't much difference in the Stamp Duty to be paid on properties selling for £250k and £265k.

In my suggestion (post #3), for example, a £250k property would attract £5,000 tax while a £265k property would attract £5,750. Yes it's an increase (15%) but not that much of an increase as overall I doubt this would affect _that_ many sales.

Though saying that, given the full data it should be easy enough to smooth the bulges back to where they should be.