Monday, January 7, 2008

Sheeple raising cash on a mortgage to pay a government tax !

Property buyers don't know how to raise stamp duty, says Stroud & Swindon

Forty-two per cent of those planning to buy a property have no idea how they will raise the cash for the stamp duty land tax, according to research by Stroud & Swindon. A quarter of respondents plan to add the tax onto their mortgage and the same proportion plan to use their savings, though this varies between the sexes.A third of men say they will to use their savings, compared to one fifth of women and 29 per cent of women plan to add the stamp duty onto their mortgage, compared to 18 per cent of men.More than half of over 55s admitted they did not know how they would pay their stamp duty bill with their next property purchase.

Posted by jack c @ 04:42 PM (1463 views)
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25 thoughts on “Sheeple raising cash on a mortgage to pay a government tax !

  • Before we kick off on this, we should be clear that stamp duty is a tax on the surviving generation, not the recently deceased.

    It’s an obvious point, but one that’s often missed.

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  • another point often missed is that the stamp duty is paid by the seller, not the buyer.
    it is a subtle, but well known point of microeconomics… if you remove the stamp duty prices go up by the reduced amount of the tax.
    if not convinced, think about who is forcefully lobbying against the stamp duty… lenders, estate agents!

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  • Paul, you’re thinking of Inheritance Tax. Stamp duty isn’t so much of an issue. Stamp Duty Land Tax, to give it its full title, is charged when you buy a house (the buyer is liable not the seller). The rate is based on the value of the property purchased, and is payable at the time of purchase. It’s basically a sales tax for houses.
    – Property value £0 – £125k : 0%
    – Property value £125k – £250k: 1%
    – Property value £250k – £500k: 3%
    – Property value £500k+: 4%
    So somebody buying a £249k house must hand over £2,490 to the Chancellor.

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  • Drewster
    the buyer is liable, but the stamp duty comes from the seller pocker, really.

    economists know that quite well, that is why there is no action on the stamp duty to ease FTB conditions

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  • I think the point Jack is trying to make is that the current Government is increasingly relying on borrowed money via a third party to fund its ever increasing monetary requirements.

    The practice of people lumping property related tax bills onto their mortgage is effectively funding the government with money it otherwise wouldn’t have!

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  • confused76… I’m pretty sure it’s paid by the buyer, not the seller. Doesn’t make much difference really.

    On the wider macroeconomic point, higher transaction costs lead to fewer transactions. If stamp duty was e.g. 50% then there would be far fewer speculators out to make a quick buck; people would only buy a property if they really really wanted to live in it. Also people would move house less often – probably good for community cohesion but bad for the economy as a whole (labour force mobility is essential in a capitalist economy). High stamp duty also deters people from downsizing, and if your neighbour received a drum kit for Christmas it would be much harder to move out. So in general stamp duty on property is too low to deter speculators and yet high enough to annoy people. A pretty bad tax really.

    Some countries are worse than the UK:
    France – 4.89%.
    Belgium – 12.5% (10% in Flanders)
    Ireland – 0% to €125k, then 7% up to €1m, then 9%.

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  • enuii: Good point. Quite a lot of the government’s revenue over the last few years has come from borrowed money in one form or another. Think of all the VAT charged every time somebody spends on their credit card!

    confused: Ok I’m with you now. Scrapping stamp duty wouldn’t make a jot of difference to FTBs, the price would just rise to compensate.

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  • Drewster
    Sorry but I will not take you through a long microeconomic explanation,
    agreed: it is paid by the buyer!! happy?
    but the one who bears the cost of the stamp duty is the seller and not the buyer. sorry it is a simple principle of microeconomics.

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  • OK Drewster
    sorry our posting “crossed in the mail” :)))
    we were saying the same thing

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  • I guess the government must have got quite a lot of money from stamp duty over the last few years. Loads of properties selling, and rising prices bringing more and more properties into the stamp duty levels. If property sales and prices go down won’t the government be a bit short?

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  • drewster – you’re right – sorry to confuse.

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  • fahrenheit451 says:

    Hi Su,

    Just makes me think of “Death and Taxes” being the only certian things in life.
    The Government will make an abolute killing if prices go down, hmm all those BTL’s selling up, means that somebody is buying and in the process HMG alias the Rev’nu’ will love to help themselves to another slice of the cake …

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  • Bubbles. . . . says:

    SU couldnt agree more. This is why they will do anything they can to avoid a crash! How can the miracle economy carry on if there isnt 10-15% gains in property! Hey quick cut intrest rates print some more money! Who cares about inflation we can inflate away debt just carry on passing the hot potato!

    I read a good letter in the Sunday Times from Trevor Evans. Which summed up very much I believe the position of most of us on this site.

    Especially good as it refered to succesive governments and their total and utter failure to in anyway manage the british economy or sterlings plight. The economics of the mad house have been applied to us all. Starting with the Labour government an American loan to finance an already bankrupt NHS and put in being communistic ideals which might just as well been declared “god has returned to the new Jerusalem and we dont have to worry about money anymore”. Mr Evans correctly concluded that our economic policy has been a national disgrace, and that our twin defecits our managed in cloud cuckoo land by politicians desperately seeking another 5 years in power in order to put the same crazy policies on poor Englands back.

    House prices are the sop to the people where we can all say to each other after dinner you know we made another £1000 this week on our house darling, and how David Smith can amazingly pass off a 50 billion trade defecit by saying that the figures were wrong by 5 billion pounds is totally and utterly improbable ignoring of course the extra 45 billion of borrowing the goverment needs to keep the wolf from the door, add to this the other defecits from computer projects etc etc etc..We are probably slipping into the red each year to the tune of 120 billion.

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  • I don’t think they will make a killing. There will be lots of BTLs TRYING to sell, but no buyers – given that the number of successful mortgage applications has taken big dips in the last few months, I doubt many buyers will be able to buy even if they are stupid enough to want to.

    I don’t think any departments of the government are cheering this crash on, though we certainly seem to be 🙂

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  • The government has benfitted massively from the dramatic rise in house prices over the last 10 years. I can’t understand why its considered a “good thing” when house prices continually go up like they have done, as to me its only the government and EAs who benefit… and yeah, they may also benefit if there is a firesale of BTL properties over the next few years…

    I live in London and you can’t currently get anything but a one bed flat for under £250k – therefore you HAVE to give the government at least £7.5k when you buy a house.

    They took away the minimum stamp duty for FTBs in Ireland last year (or soemthing like that) – I wouldn’t be surprised if Labour did that here over the next year or two to try and entice FTBs back into the market.

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  • Bubbles. . . . says:

    Su how can this miracle economy keep going without 10-15% gains in property?! How else can there still be the feel good factor of things can only get BETTER! What a great song that heralded a new era of no more Boom and Bust, and wot a jolly good job there doing! Look at David Smith as well the best supporter and spin master there is for Labour. Intrest rates down inflation up! wages Up! Inflate away Debt! Then start again…genius..
    I read a good letter in the Sunday Times from Trevor Evans. Which summed up very much I believe the position of most of us on this site.

    Especially good as it refered to succesive governments and their total and utter failure to in anyway manage the british economy or sterlings plight. The economics of the mad house have been applied to us all. Starting with the Labour governements an American loan to finance and already bankrupt NHS and put in being communistic ideals which might just as well been declared god has returned to the new Jerusalem and we dont have to worry about money anymore. Mr Evans corrctly concluded that our economic policy has been a national disgrace, and that our twin defecits our managed in cloud cuckoo land by politicians desperately seeking another 5 years in power in order to put the same crazy policies on poor Englands back.

    House prices are the sop to the people where we can all say to each other after dinner you know we made another £1000 this week on our house darling, and how David Smith can amazingly pass off a 50 billion trade defecit by saying that the figures were wrong by 5 billion pounds is totally and utterly improbable ignoring of course the extra 45 billion of borrowing the goverment needs to keep the wolf from the door, add to this the other defecits from computer projects etc etc etc..We are prpobably slipping into the red each year to the tune of 120 billion. Is David Smith trying to get elected? Where he will become the apologist for all parties, and lead us into a finacial world where what we wish is much better than what we deserve. Vote for David Smith..

    Reply
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  • Bubbles. . . . says:

    I read a good letter in the Sunday Times from Trevor Evans. Which summed up very much I believe the position of most of us on this site.

    Especially good as it refered to succesive governments and their total and utter failure to in anyway manage the british economy or sterlings plight. The economics of the mad house have been applied to us all. Starting with the Labour governements an American loan to finance and already bankrupt NHS and put in being communistic ideals which might just as well been declared god has returned to the new Jerusalem and we dont have to worry about money anymore. Mr Evans corrctly concluded that our economic policy has been a national disgrace, and that our twin defecits our managed in cloud cuckoo land by politicians desperately seeking another 5 years in power in order to put the same crazy policies on poor Englands back.

    House prices are the sop to the people where we can all say to each other after dinner you know we made another £1000 this week on our house darling, and how David Smith can amazingly pass off a 50 billion trade defecit by saying that the figures were wrong by 5 billion pounds is totally and utterly improbable ignoring of course the extra 45 billion of borrowing the goverment needs to keep the wolf from the door, add to this the other defecits from computer projects etc etc etc..We are prpobably slipping into the red each year to the tune of 120 billion. Is David Smith trying to get elected? Where he will become the apologist for all parties, and lead us into a finacial world where what we wish is much better than what we deserve. Vote for David Smith..

    Reply
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  • Re: the BTLs. That’s true, Fahrenheit451. I hadn’t thought of that.

    But I wonder how many flats and ex-council houses will fall below the stamp tax limit during the next year. Even in Edinburgh it is still possible to buy a small flat under £125K.

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  • Stamp duty has indeed been a fabulous earner for the government over the last decade or so.

    When house price inflation is 10% per annum, stamp duty at up to 4% is not restrictive and does not measurably effect the decision to move house.

    But in a static or falling market it is a different scenario.

    If you are selling a property for 230k and trading up to that family home at 300k, it is going to cost you about;

    Valuation Fee £300
    Survey £600
    Solicitors Fees £1400
    Removal £500
    EA Fees £2300
    Stamp Duty £9000

    Total £14100 Costs from http://www.your-move.co.uk/move_cost/mort_cost.htm

    Over 14K, Sod that!!!!!!! I’m staying where I am, and so will everyone else!

    Stamp duty revenue in 2006/7 was £6.4bn (£2.7bn 2001/2)

    I would estimate a 30% – 50% decline in stamp duty revenue this year.

    That leaves a £3bn hole in the budget!

    Oh dear Gordon Darling!!!!

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  • Stamp Duty is the tax you pay when you buy property- quote from Direct.gov.uk- they should know

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  • wdbeast and drewster …. some countries are worse… but there is a benefit… really

    In the Netherlands the taxes and fees that a buyer has to fork out amounts to around 10% of the transation costs. Therefore for a fairly average 4 bed bungalow (EUR700K) the costs are EUR70K, 6% of this going straight to the Govt.

    The effect of this is that people think long and hard about buying. .. and hence most rent long term from public housing associations .. and there is little speculative buying by the masses (a game only for the rich). The only benefit for the house owner is a larger property (yes the houses here are pretty tiny) and the ability to claim a portion of the mortgage against tax (MIRAS still exists here) – if you are entitled that is (some expats like me are not entitled). House prices have been stagnant here since about 2004 due to this effect and the fact the Govt sensibly released a lot of building land when the bubble started on 2002/2003 to the extent that a new town was built from scratch new where we live.

    Renters by the way have huge legal protection in The Netherlands (so the BTL wide-boys would never make a fast buck here) as Rent increases above inflation are unheard of – in fact the judge will usually rule in the favour of the renter rather than the land lord and award inlation rises only. … public housing associations are the biggest owners – and they are used to generate a large bulk of the income for pension funds.

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  • The Government clearly has a vested interest in keeping property prices high because of the receipts from both Inheritance Tax (IHT) and Stamp Duty Land Tax (SDLT). Furthermore Mr Brown likes profitable financial institutions (he was allegedly planning a windfall tax on the banks profits some years ago) and surely higher house prices give rise to more banking profits because of the extra interest generated.

    I have just done a quick calculation using a 7% mortgage interest rate and anyone adding the Stamp duty to their mortgage will pack back approximately double what they borrowed over the term of the mortgage.

    So my thinking on this is high house prices = high IHT & SDLT receipts + high corporation Tax receipts from profitable Banks with the option of a windfall Tax.

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  • Skiing could be one of the modern factors to reduce IHT or even joint house purchases between retired parents and offspring, as some parents may have borrowed against value of their own property. Also with such overvalued prices, gains from SDLT could be lower now than in the next few years as lower house prices bring much higher volumes.

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  • wdbeast: You’re quite right, when the market is slowing the number of transactions falls sharply. We’ve already seen this happening. This means the government’s take from Stamp Duty will be lower in the coming year.

    sirgoogle: Thank you for your insight into how other countries do it – the right way! The key seems to be strong tenants’ rights; that has worked well in Germany too.

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  • There are loads of properties on the market in Scotland at offers over £125K – including some rather nice 2 and 3 bed properties. I would think if people are expecting prices to fall, they’d just wait for these properties to go for Fixed Priced £125K thus avoiding stamp duty.

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