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

wozearly

I haven't yet had the time I'd hoped for to look into this in more depth so far, but just wanted to respond to two points.

JimmyTheWig wrote: »

One of Martin's conditions was that "It’s fair and roughly proportionate...I don't think reducing the tax on lower price properties and increasing it on higher priced properties fits this criteria.

I feel that that there's a balancing act between 'fair and roughly proportionate' with 'politically viable'. What Martin is after is a solution, after all.

Otherwise, its hard to see how we wouldn't end up with your proposal, albeit with some wrangling about the exact start point of the first point on the scale. Its the only straightforward mathematical solution that makes sense.

The only flaw in it was in political terms - it raised the tax by 6%, and almost half of that was funded purely by sales of properties under £125,000.

wozearly

grey_gym_sock wrote: »

my answer to the original question, viz. how to fix (b), by charging marginal rates, and attempting to be revenue-neutral, is:

£0 - £125,000: Nil
£125,000 - £250,000: 3%
£250,000 - £2,000,000: 6%
£2,000,000 and above: 8%

so there is a fairly even spread of winners and losers as you go up the price scale.

i don't know if it's actually revenue-neutral. wozearly tried (see earlier in the thread) testing JimmyTheWig's proposal in a spreadsheet using land registry statistics. but the land registry now has full data for march available for full download, so we could test for revenue-neutrality more accurately using this.

I plugged it into the same spreadsheet I built before and it came out fairly close to revenue neutral. I haven't put a new version on google docs as I want to check the coding and put a few other suggestions through.

Based on the current tax bandings, the changes were:

<£125k = unaffected
£126k-£250k = 3% average reduction
£251k-£500k = 7% average reduction
£501k-£1m = 8% average increase
£1m-£2m = 4% average increase
£2m+ = 11% average reduction

Overall effect = 1% decrease in tax revenue

Interestingly, it actually created a significant reduction on properties between £2m-£3.6m because the cliff edge up there is so severe. If the top tax band is 11% rather than 8%, it would remove that effect (and lead to a 0% difference in overall tax revenue).


In terms of land registry statistics, I used aggregate data from Dec 2011 and some assumptions because it was quick to pull together something that could be used to field-test proposals.

Using March data won't be more accurate, in my view. Its still only looking at a single month (I used Dec 2011, so not much different). The best way to improve accuracy would be to collate a few years' worth of information at sale price level and use that, plus some market information, to make assumptions about the future.

...bit more than I have time for, what with a day job 'n all. :cool:

sghughes42

Are there any figures out there for how much Stamp Duty actually brings in to the treasury each year? Especially as a percentage of total tax take.

I suspect it is very low but I could be wrong.

The main problem is making it fair across regions. £250k up here near Manchester could get a decent sized house, in Central London you would be lucky to buy a shed.

I'd be tempted to say just scrap it completely. The benefits would be that larger properties become more affordable. At the lower end of that market that becomes fairly significant. At the higher end you are unlikely to be worried about the relatively small sums involved anyway.

An alternative would be a tax on the sale of property rather than the purchase. That doesn't hurt first time buyers as they have no property to sell and would also help landlords increasing their portfolio so could help tenants by proxy.

It would hurt people moving up less than stamp duty, the only people worse off would be those downsizing.

edgex

thelawnet wrote: »

Not really.

It is well-established principle in this country that the better off pay not just more tax but higher rates of tax.

This applies to income tax, air passenger duty, and indeed to expensive houses.

Having just established a 7% tax on £2m+ houses, as those people can clearly afford to pay that much, it's absurd to imagine they will henceforth just tax everybody at say 2%.

there are, generally, 2 forms of tax;

income/earnings based taxes, eg income tax
purchase taxes, eg VAT, air passenger duty



stamp duty is charged on the purchase of a property
its a % of the price of the property
its paid by the purchaser

therefore its a purchase tax

purchase taxes are not usually banded, nor do they change based on a persons wealth

buglawton

Yes, when young professionals want band together in London and share the purchase of one large property, they are really slammed for stamp duty.

grey_gym_sock

wozearly wrote: »

Using March data won't be more accurate, in my view.

didn't you have to make some assumptions about the average sale price in each band? the advantage of the march data is that it has every price, so no such assumption is needed.

dunno how much difference it would make, though.

thanks for running the figures through.

grey_gym_sock

sghughes42 wrote: »

An alternative would be a tax on the sale of property rather than the purchase.

i think that would make no difference, because prices would rise slightly to compensate. sellers would want a higher price, because they'd know they'd be paying the sales tax; and buyers could afford a higher price, because they'd no longer be paying stamp duty. so we'd end up exactly where we were before.

Mother_Pratt

My simple solution is:

Below 125k, no tax.
1% on any amount over £125k
plus 5% on any amount over £250k
plus 15% on any amount over £2m

The winner/losers are around the current price breaks... but these would naturally disappear as a smoother tax system was implemented.
:j

sghughes42

grey_gym_sock wrote: »

i think that would make no difference, because prices would rise slightly to compensate. sellers would want a higher price, because they'd know they'd be paying the sales tax; and buyers could afford a higher price, because they'd no longer be paying stamp duty. so we'd end up exactly where we were before.

On the assumption most people are buying and selling at the same time, and that the people who most need the help are those moving to a larger house, they would be better off.

A seller would only be looking for a higher price if they weren't buying or were downsizing. If you pitched the levels right then any property likely to be bought by a first time buyer wouldn't incur tax for the seller then you'd really kick-start the lower end of the market. FTB properties wouldn't need to go up in price and people moving up from FTB-type properties wouldn't be paying tax either so that would keep the lower end of the market moving.

At the moment the bottom end is stagnant as first time buyers in most areas are liable for duty and those moving up have to pay duty so are asking a higher price for their properties which is discouraging FTBers further.

JimmyTheWig

sghughes42 wrote: »

On the assumption most people are buying and selling at the same time, and that the people who most need the help are those moving to a larger house, they would be better off.

I think you've missed grey gym sock's point.

Lets say for a given house, market forces dictate that it will sell for £150,000. The seller gets £150,000 and the buyer pays £151,500 (i.e. including tax). The seller isn't prepared to sell for £148,500 and the buyer is happy to pay more than £150,000. If that wasn't the case, the current selling price would go down.

The rules change as to who pays the tax.
If the house stays at £150,000 then the seller will get £148,500 and the buyer will pay £150,000.
But we've just said that the seller wants more than that and the buyer is prepared to pay more than that.
So market forces mean that the price will go up to £151,500.
The buyer pays £151,000 and the seller gets around £150,000.

Nothing really has changed.