Average home buyer £4,500 better off in England and Wales since tax change

The average home buyer in England and Wales is £4,500 better off under the new progressive structure of stamp duty introduced a year ago but the Treasury is collecting a record amount of the tax.

Since the change the typical home buyer has paid a total of £3,676 in stamp duty, based on the current average house price of £273,531. Under the previous flat structure, a buyer paying this price would have been subject to stamp duty payments of £8,205, a saving of £4,529.

The research from the Halifax, a major UK lender, also shows that the ‘tipping point’ price is £938,000, when a buyer is worse off under the new stamp duty structure and sales above this level in the first six months of 2015 were 10% lower than in the first half of 2014.

This decline was exactly in line with the market as a whole, with total sales also down by 10%. This is in contrast to both 2013 and 2014 when the prime end of the market was significantly outperforming the rest of the market.

More significantly, sales above £1.5 million, which are more affected by the changes, have seen a bigger impact with a 20% decline, twice the market fall.

The research also reveals that increased property prices and a higher number of residential property transactions boosted stamp duty revenues by 16% between 2013/2014 and 2014/2015 to a new record high of £7.5 billion.

This comfortably exceeded the previous high of £6.68 billion at the peak of the last housing market boom in 2007/2008 and was more than 14 times as much as the £520 million raised by residential stamp duty 20 years ago in 1994/1995.

London alone contributed 40% of all UK stamp duty revenues in 2014/2015 compared with 13% of all property transactions. London’s stamp duty share has risen from 28% in 2007/2008, with revenues raised in the capital increasing by 60% from £1.9 billion in 2007/2008 to £3 billion in 2014/2015.

Some 80% of all home purchases in England and Wales between May 2015 and July 2015 were above the starting stamp duty threshold of £125,000 ranging from nearly all sales in London to 55-60% in northern England and Wales. This compares to 71% in 2006 when the starting threshold was initially raised to its current level. The starting threshold would now be £157,000, some £32,000 higher, if it were raised in line with house price inflation since 2006.

Nationally, 32% of all purchases by first time buyers were below the £125,000 threshold at which stamp duty becomes payable during the three months from August 2015 to October 2015.

‘The changes made to stamp duty a year ago have been of significant benefit to many buyers. Only those purchasing the most expensive homes are worse off. There is some evidence that the top end of the market has been adversely affected by the changes with sales over £1.5 million falling by twice as much as the market as a whole,’ said Craig McKinlay, mortgages director at the Halifax.

‘The failure to index the start point for stamp duty in line with house price inflation has dragged more buyers into the tax net in recent years. Buyers in London have been particularly badly affected with the capital accounting for an increasing and disproportionately large share of stamp duty revenues,’ he added.

A breakdown of the research figures show that London is one of only three regions to have seen an increase in residential stamp duty revenues between 2007/2008 and 2014/2015. The others are the East of England, up9%, and the South East up 8%.

Indeed, 72% of stamp duty revenue raised in the UK in 2014/2015 was in London, the East of England and the South East. This was significantly higher than their 61% share in 2007/2008.

Nearly all home buyers in London pay stamp duty with 99% of purchases in the capital above £125,000 compared to 71% in 2006 and only 16% of home purchases in London is below the upper limit of £250,000 for the lowest 2% tax band. This compares with 63% of purchases in England and Wales as a whole below £250,000.

In contrast, 45% of all home buyers in the North East and approximately four in ten in the North West, Wales and Yorkshire and the Humber are purchasing below the starting point for stamp duty payments of £125,000.

No sales to first time buyers in London were below £125,000 during August to October 2015. At the other end of the spectrum, 73% of first time purchases in Northern Ireland, 63% in the North East, 55% in Wales, 54% in Yorkshire and the Humber and 51% in the North West were for less than £125,000 and therefore not liable for stamp duty.

More than 80% of first time buyer purchases in London and 38% in the South East were above £250,000. In contrast, less than 5% of first time buyer purchases in the northern regions of England, Wales and Northern Ireland were above £250,000.