The reform of the stamp duty property tax which took effect today will remove ‘dead zones’ that existed before each previous Stamp Duty band and see a more progressive approach adopted where buyers will only liable to the portion of the property’s value above each new level.
In an analysis of property sales in the 12 months to May 2014, the firm reckons that 28,635 properties have been under priced in order to make them more appealing to buyers by avoiding steep jumps in stamp duty.
Zoopla found that the number of property sales in the price bands immediately before an existing stamp duty threshold is significantly higher than expected, while the number of sales in the price band immediately after a threshold, the stamp duty dead zone, is considerably lower.
‘The new, graduated Stamp Duty system is a long overdue overhaul to what the Chancellor admitted was a poorly designed tax and represents a fairer system for the vast majority of home buyers,’ said Lawrence Hall of Zoopla.
‘It also means that those selling their home at certain levels are more likely to achieve the real value of their homes and won’t be forced to discount their properties to sneak under certain bands,’ he explained.
‘Unfortunately those buying property worth more than £937,000 may feel unduly penalised by the new reforms, but the new structure represents a more balanced system overall and a welcome alternative to the mansion tax plans that had been proposed,’ he added.
As an example, a house purchased at £300,000 would have resulted in a £9,000 stamp duty bill. With the new system, a buyer will save £4,000 calculated as follows: 0% tax up to £125,000, 2% tax on £125,000 to £250,000 which is £2,500, 5% tax on the remaining £50,000, which is £2,500, leading to a total stamp duty bill of £5,000.
Kevin Hollinrake, managing director of Hunters estate agents with 125 branches nationwide, said the firm has already had deals secured as a result of this change.
‘In our opinion, this is great news. For too long, stamp duty has distorted the market deterring sellers from marketing their homes and buyers from buying them in the dead zones above the key thresholds such as £250,000 and £500,000. This should mean more property coming onto the market, and therefore, more sales which is good for the housing market and the economy as a whole,’ he explained.
There will be substantial savings for around three quarters of a million home buyers across England and Wales according to research from Savills as all buyers up to £937,000 will benefit. By contrast, around 17,000 transactions above a value of £937,000 will bear an increased stamp duty tax burden, undermining the case for any further taxation of high value property.
‘The change is likely to make the market more fluid generally, stimulating increased transactions at the lower end of the market. That could have knock on positive impacts on consumer sentiment and the house building industry,’ said Lucian Cook, Savills UK head of residential research.
‘However, in our opinion, the prospect of rising interest rates and the reality of mortgage regulation are likely to prevent any significant bounce in house prices. At the top end of the market, experience tells us that an increase in tax liability takes time to be absorbed, though we expect these changes to have less impact than an annual tax in the form of a mansion tax might have had,’ he added.
According to Liam Bailey, global head of research at Knight Frank, the changes will remove distortions in the market. ‘There will be less bunching of values below the different thresholds,’ he pointed out.
‘However, the new higher rates of stamp duty at the top of the market could act to reduce transaction volumes here and actually lower overall tax take more than currently forecast. Over the last year alone transactions of £1 million plus homes have accounted for nearly 30% of all Stamp Duty revenue,’ he explained.
He also pointed out that the government is expecting to take a hit to its stamp duty receipts as a result of the measure. Last year it collected £6.4 billion in stamp duty on house sales. It expects overall stamp duty receipts to rise, but says that the measure will cost it £760 million and £840 million in 2016/2017.
Grainne Gilmore, Knight Frank head of UK residential research, said more first time buyers and home movers will be paying less tax, which could serve to ease progression up and down the property ladder.
‘As this measure, coupled with Help To Buy, make it more affordable to buy a home, policymakers now need to turn their attention to supply and making sure there are enough new homes to meet demand across the country,’ she added.
The new structure will apply to people buying homes in Scotland until 31 March 2015 only as after this date, the Scottish Government’s Land and Buildings Transaction Tax will replace stamp duty in Scotland.
Mark Hayward, managing director of the National Association of Estate Agents, said that pinch points have been addressed to help first and last time buyers and make buying and selling more affordable.
‘The changes will help many first time buyers to get on the property ladder. In addition, we also expect the changes to help balance the seesaw of supply and demand in the current market. The housing market will now be about affordability, availability and accessibility, in terms of mortgage funds and lending criteria, as well as achievability. The new reforms will now allow greater movement for house buyers and sellers in the UK property market,’ he added.
It is also good news for landlords, according to Richard Lambert, chief executive officer of the National Landlords Association. ‘The NLA has argued for many years that a progressive system would offer a fairer and far less distorting means of taxing property purchases,’ he pointed out.
‘What’s more important is that the introduction of a straightforward marginal system of taxation will mean private landlords will now not only face lower costs when acquiring property, but also have funds to implement property improvements and keep rents down,’ he explained.
According to Sue Foxley, research director at Cluttons, the new tax system will be welcomed by buyers who have been unable to step on or up the property ladder due to the previous slab rates, which were considered unfair to both buyers and vendors as prices around thresholds have always been artificially influenced as a result of the rigid banding.
‘The new bandings at the top end paying 12% on the part of the property priced over £1.5 million is clearly aimed at the overseas cohort and will likely put to bed the recent political ramblings on a mansion tax. Prime central London will be most significantly impacted by this, however we will have to see whether this will have any effect as the upper end of the market is largely dominated by international buyers and London’s global investment appeal is unlikely to wane in the long run,’ said Foxley.
‘While all the changes at the top end of the market may be financially and morally justified, the uncertainty over tax treatment tends to stupefy the market. Without movement at the upper end, there is a knock on impact further down the line resulting in the low transaction levels we are now seeing the London market,’ she explained.
‘London's appeal as a home for investment reflects its qualities as a global city. However, in order to maintain that status we need to ensure it offers a quality of life that appeals to domestic and global skilled workers for which corporates compete. Unfortunately if it cannot deliver on quality of life expectations, London will be displaced by other global cities,’ she added.
Andrew Loveday, sales director of Countryside, believes that the cost of stamp duty has played a significant role in whether buyers can afford to purchase a property particularly those buying for the first time, something which became even more apparent when Help To Buy was introduced.
‘We believe this will have an extremely positive impact on the housing market by freeing up buyers deposits and equity and allowing it to be invested in their homes rather than spent on stamp duty,’ he added.
But the Chancellor has not done as much as he could have for first time buyers, according to Rob Clifford, chief executive of mortgage brokers If I Were You and estate agency, Century 21 UK. ‘He could have scrapped stamp duty for homes under £500,000 and proposed indexing the remaining thresholds to inflation,’ said Clifford.
‘That said, the slab system had become an insatiable stealth tax and was grossly distorting the market as selling prices and offers were frequently couched in order to minimise the stamp duty payment. Let's also not forget that stamp duty revenue receipts have more than trebled under the old regime due to price rises and this move certainly goes a fair way to righting that wrong,’ he added.
Andrew Ellinas, director of Sandfords believes the reform is likely to help the London property market. ‘The implanted new bands seem fairer and less divisive than Labour’s proposed mansion tax on properties worth more than £2 million. Even though house prices in the capital have increased more and more, this new system will mean that less Londoners will be dragged into paying huge amounts of tax as an apparent 98% of home buyers will see a cut,’ he pointed out.
‘This could increase the number of first time buyers in London, enabling them to get onto the property ladder, something that has proven to be very difficult, as it reduces the burden of stamp duty. It will also help young professionals and families that have been looking to take that second step and trade up the housing ladder,’ he added.
