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First-Time Buyer Stamp Duty Break May Go

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http://www.thisismoney.co.uk/mortgages-and-homes/stamp-duty/article.html?in_article_id=506913&in_page_id=80

First-time buyer stamp duty break may go

By Simon Lambert

24 June 2010

The Government is 'reviewing' the stamp duty break for first-time buyers up to £250,000, which could see it fail to become a permanent fixture.

A two-year stamp duty holiday up to £250,000 was granted to first-time buyers by outgoing Labour Chancellor Alistair Darling, in his final pre-election Budget.

The move stole what had been one of the Conservative party's big pledges in previous years and the Tories had been expected to make it permanent if elected.

But this week's Budget confirmed that the coalition government may perform a U-turn on the promise, and axe the break rather than make it permanent.

The Budget said: 'As announced in the Coalition Agreement, the Government will review the stamp duty land tax relief for first time buyers taking into account its impact on affordability and value for money.'

The statement has led to speculation that the stamp duty break worth up to £2,500 for first-time buyers of property up to £250,000 may be scrapped, especially as there has been no supporting words for what was previously Tory policy.

According to figures, calculated in Labour's final Budget in March, the two-year exemption will cost around £550m. The Budget confirmed that a new stamp duty band of 5% on properties costing more than £1m will arrive next April. This would lead to buyers paying at least £50,000 in tax to the Government.

The stamp duty exemption is of most help to those buying in London and the South. In the southern regions many first-time buyer properties cost more than the £125,000 at which stamp duty would otherwise kick in and in many areas of London, a simple one-bedroom flat costs £250,000.

The real problem with stamp duty, however, is not the 1% band which cost people up to £2,500 - it is the bands above it that hike the bill to £7,500 or more.

The arrival of the tax break has further highlighted the massive problems in the stamp duty system caused by the current bandings and charging system.

The system works by charging a percentage on the entire purchase price above set thresholds. These are 1% at £125,000; 3% at £250,000; 4% at £500,000 and soon to be 5% at £1m.

But unlike other taxes where the higher percentage is only charged on the amount above the threshold, stamp duty is slab-style and imposed on the full amount, to be paid by the property buyer.

This leads to a massive jump in bills at the threshold levels. Those breaking the £250,000 mark go from paying £2,500 in tax to £7,500 in tax, or from nothing to £7,500 in a first-time buyer's case.

The same effect also occurs further up the scale, but it is at the £250,000 mark that it is the biggest problem, as this is where families are most likely to be buying a home, or you find young couples moving to their second property or first-time buyers purchasing in London and the South East.

Not only do they face a bill for £7,500 on top of finding a deposit and securing a mortgage, but they are paying a tax based on what the seller achieves, in many cases having turned a profit.

Compounding the problem, this effect artificially drags properties near to the £250,000 threshold down in value but not those above it. That leaves the seller of a property that would theoretically be worth £260,000 potentially having to accept £250,000, while the seller of the £300,000 property they are buying is far enough away from the threshold to not have to lower their price. Thus, the gap between the price of the properties spreads and trading up the ladder becomes much harder.

In those areas most affected by this the gulf between a first-time buyer property and second time buyer home is huge. A one-bedroom flat may cost £250,000, but a two bedroom property £350,000.

So what next for stamp duty?

The current system of thresholds was introduced by Gordon Brown as Chancellor, who then increased percentages and milked stamp duty as the property boom hit. Revenues from the tax collapsed with the property slump.

There have been many calls over the years for the way stamp duty is charged to be completely overhauled, and when the tax take is low would be an ideal time to do so.

However, the Tories find themselves in charge at a time when there is no money to spare. The Budget predicts stamp duty will deliver £4.9bn in 2009/10, £5.8bn in 2011/12 and up to £13.5bn by 2015/16. Making the system fairer will eat into this projected revenue.

There is also a political problem in that stamp duty is mainly a problem felt by London and the South East and any changes to make it fairer will see accusations that the Conservatives are a party for the rich.

It may be that having made it a manifesto pledge the Tories and Lib Dems keep the £250,000 break, but they also might say that in the current austerity climate it cannot be afforded and benefits relatively few homebuyers.

However, whether the Government retains that first-time buyer break or not, stamp duty remains an unfair tax which our politicians appear to be willing to hold their nose and watch the money roll in on.

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http://www.thisismoney.co.uk/mortgages-and-homes/stamp-duty/article.html?in_article_id=506913&in_page_id=80

First-time buyer stamp duty break may go

By Simon Lambert

24 June 2010

Difficult to assess the projected cost of £550M over 2 years quoted. Average FTB cost is £150k ish (according to Debt Matters) so that equates to roughly 15,000 sales to FTBs a month over two years, an assumption which is way over sales seen.

That logic may be flawed, just trying to be a rough idea. The easiest rule to follow is:

More stampy=more crashy

Edited by cheeznbreed

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Difficult to assess the projected cost of £550M over 2 years quoted. Average FTB cost is £150k ish (according to Debt Matters) so that equates to roughly 15,000 sales to FTBs a month over two years, an assumption which is way over sales seen.

That logic may be flawed, just trying to be a rough idea. The easiest rule to follow is:

More stampy=more crashy

28% capital gains and a possible removal of stamp duty exemption for houses that have effectively more than doubled since the bottom of the last crash suggests they are trying to tip the market over fairly quickly.

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I've always struggled to understand why they don't make it like income tax - only pay the higher rate on the amount over the threshold.

The figures could be changed so that the total income remains the same.

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28% capital gains and a possible removal of stamp duty exemption for houses that have effectively more than doubled since the bottom of the last crash suggests they are trying to tip the market over fairly quickly.

That was my first thought.. although they will probably try to create a "rush to buy" by giving a nice 6-9 months notice period.

Brace yourself for EA's creaming themselves over glossy adverts recommending "Buy now, beat the stamp duty"

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I pretty much refuse to spend much over £125k on a house anyway, unless it really was unique, or had a decent garden/land, even then i cant imagine spending more than £175k on a house.

Average prices in 1995 were about £50k - average wages have gone up about 50% since then.

In a sane world £125k should buy you all the house you'll ever need. Its about 5 times mean wages or 7/8 times median wages afterall.

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I actually sort of hope they leave it. Firstly it appears to have had no effect in lifting demand (or would demand be even lower now without it?) and by bringing it back in means will have potentially have a rush to buy like in December albeit on a much smaller scale.

Secondly when I eventually do buy i'd quite like to save the SDLT! Although saying that if prices fall enough I won't be spending over the £125k threshold. My mind has changed as I wrote this post. Scrap it. Soon.

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28% capital gains and a possible removal of stamp duty exemption for houses that have effectively more than doubled since the bottom of the last crash suggests they are trying to tip the market over fairly quickly.

hmm, I'm not convinced the CGT change will help tip the market over, although it will maybe deter new entrants who are thick enough to suppose they'll have tasty gains in a couple of years. Perhaps that in itself will be sufficient. It's a funny time at the moment, just a complete standoff. The market must drop eventually with these transaction levels though, so if the deterrant of CGT makes amateur landlord wannabees think twice, so be it (the rise in CGT may save some of them a packet if they decide not to bother!)

eg, transaction volumes calc:

Transactions of about 40k salesmonth (L.R. Feb 2010)

20M households, so 0.2%/month have activity, or about 2.5% a year.

So in my town (pop 200,000), guess that's about 70,000 households following the national average), that means 1700 sales/year MAX. There are currently 2100 for sale. Some of these people will have to sell for whatever reason.

Edited by cheeznbreed

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  • 150 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
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      • up 5%



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