Stamp duty choking UK housing market

The UK housing market is being choked by stamp duty, say the Homeowners Alliance(HOA) in a special report released today.

Stamp duty as risen by more than seven times the rate of inflation since the mid-1990s, taking the typical bill faced by buyers to almost £6,000, a report by the homeowners' campaigning group has said.

HOA said the government's stated policy of encouraging home ownership was being undermined by the duty, which it claimed has had "a downward impact" on the market.

In a report entitled Stamping on Aspiration, it said that while house prices had risen fivefold between 1995-96 and 2011-12, the amount of tax paid on property purchases had increased 11-fold.

The HOA said the average homebuyer now paid stamp duty of £5,957, or 3.7% of their house purchase price. In London, where house prices have continued to post big rises, the average stamp duty attracted by each transaction was put at £17,529.

While the average stamp duty bill was equal to eight days' earnings in 1995-96, by 2011-12 it would take 11 weeks' work to pay it off.

Stamp duty rates

Until 1997, there was one stamp duty band, with homebuyers paying 1% on all property purchases above £60,000. The new Labour government introduced two new thresholds of £250,000 and £500,000, and since then successive governments have introduced new bands and rates.

Tax is now paid at 1% on homes bought for more than £125,000, at 3% between £250,000 and £500,000 and at up to 7% above that. The £250,000 and £500,000 thresholds have remained unchanged since their introduction, despite a 140% rise in house prices, and the tax rates on them have been increased.

The HOA said freezing those thresholds had led to a "very marked 'fiscal drag' effect", where rising prices automatically pushed houses into the higher brackets. It cited the example of a property bought for £240,000 and later sold for £270,000, moving it from the 1% bracket to the 3% bracket. In this example a 13% increase in the house price results in a 238% increase in stamp duty, from £2,400 to £8,100.

Despite the collapse in stamp duty revenues since the housing market started to falter in 2007, the HOA said the government expected to collect about £7bn in the current tax year and £11.7bn in 2017-18, more than it makes from taxing tobacco.

The HOA wants to see thresholds increased annually in line with house prices, and for the first threshold to be above the average house price. It said buy-to-let investors and second-home buyers should pay more than those buying a home to live in, and the government should consider charging sellers, not buyers.

It also called for first time buyers o be permanently exempted from the tax.