Impact of Stamp Duty Changes at top end?

nickmason

Certainly some rather ropy reporting/maths:

http://www.walesonline.co.uk/news/wales-news/2012/04/26/chateau-s-price-slashed-by-300-000-to-beat-mansion-tax-91466-30840995/

System

Is there a simple reason why stamp duty is implemented in such an idiotic way? Why isn't it like income tax? You just pay extra tax on the sum over the band?

chewmylegoff

Joeskeppi wrote: »

Is there a simple reason why stamp duty is implemented in such an idiotic way? Why isn't it like income tax? You just pay extra tax on the sum over the band?

Because it raises more money for the government in the way that it is currently structured than if it worked in the same way as income tax.

They could change it to make it more like income tax, but that would cause a drop in revenues, so to compensate for that drop. The result of this would be that anyone who pays more than the middle of the stamp duty band would lose out and anyone who pays less would gain (as compared to the current arrangements).

For example, currently the following tax is payable on the following houses:

£130,000 = £1,300
£187,500 = £1,875
£250,000 = £2,500

So the govt gets £5,675 of tax

If you only tax above the band then this is the result:

£130,000 house = £50
£187,500 house = £625
£250,000 house = £1,250

So the govt needs to change the tax rate to get the same amount of tax in. So it increases stamp duty in the £125-250k bank to 3%

£130,000 house = £150
£187,500 house = £1,875
£250,000 house = £3,750

Hey presto, the govt earns the same amount (give or take an extra £100), but the buyer of the £250,000 house has been clobbered.

That is the reality of what any changes to the tax system in this area would bring.

(NB/ this example extends up through the tax bands, so if you buy a house just a bit over £250k you would save lots, but if you're towards £500k you get screwed).