Lucy Holbrook gives her stamp of approval to the headline measure of yesterday’s Autumn Statement.
George Osborne’s announcement for a long overdue reform to stamp duty in yesterday’s Autumn Statement follows significant pressure from the housing industry and campaigners who have criticised stamp duty bandings as archaic and failing to fall in line with recent property increases. The case was clear; until yesterday the lower threshold of the tax had not been changed since 2000, whilst home values have increased by 139% in the same period.
The policy that came into force last night replaces the system where the amount owed jumps at each threshold level, with a graduated, progressive rate, working in a similar way to the way that income tax is paid. The new stamp duty rates (which have risen to 5% up to £925,000, 10% up to £1.5 million and 12 % on everything over that) will now only apply to the part of the property price that falls within that band.
As many have noted, the policy is clear electioneering from the Government in a bid to appeal to first time buyers and those living in the regions outside London who seek to benefit from a cut in duty at the lower end of the ladder. Although, we are told that stamp duty will be reduced for 98% of people who pay it – amounting to a tax cut of £800m a year. However the Office for Budget Responsibility have since stated that house prices are expected to rise by 31% by 2020 which will mean far more homeowners will pay more stamp duty. Without indexing the thresholds to inflation the policy has been criticised as nothing more than a stealth tax on middle-class (and predominately London) homes.
The hike in duty for those who own homes worth more than £925,000 is however, a well-designed counter to Labour’s mansion tax proposal but will also, in part, pay for the ‘give away’ for first and second time buyers further down the property ladder.
Labour said yesterday that they will support the reform but remain committed to proposing an annual mansion tax on properties costing more than £2 million, potentially meaning these home-owners are hit twice if Labour win the General Election next May.
Labour has argued that the Government is following their lead on taxing higher value properties and yesterday’s announcement of a tobacco levy consultation certainly suggests that the Government is responding to some of Labour’s proposed revenue raising policies. Either way, higher value properties will feel the hit, but arguably the Government’s policy makes more sense by focusing on those purchasing a property rather than those who have amassed high value properties due to massive property inflation, whilst also providing benefits for those at the lower end of the market (those of whom typically fall into the marginal voter category). Clever stuff from Osborne and the Government – the only (and most important) question remains how this tax cut will be paid for in full…