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A stamp duty cut may sound crazy now but it’s a bad tax due an overhaul

As one who has been beating the drum for many years to lower stamp duties, it would be wrong of me not to welcome the news that an ax is about to be brought to this evil tax.

Nevertheless, when reports came out Friday that a cut in stamp duties could be the rabbit out of the hat in the mini-Budget of Liz Truss and Kwasi Kwarteng, I thought: ‘What? Why?’

It’s not necessarily the best time to cut stamp duties: House price inflation is in double digits, we’re still recovering from an ill-timed tax break that fueled the pandemic boom, and the Bank of England is busy raising interest rates to try to dampen the economy.

But then a bad tax is a bad tax and if you waited a few decades for someone to be brave enough to do something about it, you may not be able to complain about the timing.

Will stamp duty be cut soon?  Rumors of a mini-budget cut in real estate taxes surfaced this week

Will stamp duty be cut soon? Rumors of a mini-budget cut in real estate taxes surfaced this week

There is a caveat to that support, but we need to learn from the ghosts of past vacations with stamp duty and lowering the tax on permanent relocation.

Stamp duty is a bad tax because it prevents people from moving home by creating a major hurdle and psychological pain point and thus inhibits the economic movement and helps to boost an already dysfunctional housing market.

It’s a weird tax on property price gains, paid not by the seller who made a profit, but by the buyer who has to stop to cash them in.

The greatest financial pain is felt by those unlucky enough to buy in parts of the country where a roof over your head costs the most, as stamp duties disproportionately affect those areas where house prices are higher (which needs to be repeated again is no good for a buyer).

It also discourages those further up the property chain from selling and moving, reducing supply at the top, which then drives prices all the way down.

Moreover, stamp duty is regressive at the regional level because it is already much harder for someone from places where house prices are lower to raise capital to move to another part of the country where they are higher – and then they have to have a great deal on top of that. another load of tax.

Some of these things are illogical; you can easily argue that those in more expensive areas are better able to pay, that a buyer has a fixed budget including down payment, tax and other fees and they work towards that too, and real estate trickle down doesn’t work.

Yet I would argue that most people do not want to hand over thousands or possibly tens of thousands of pounds to the government for moving home more often than absolutely necessary – and so stamp duty is an issue.

I know I would have moved home at least one more time if the stamp duty hadn’t been so high, and I know many other individuals and families of my generation for whom that is true.

Band Own house stamp duty rates Buy to rent
and second homes
£0 – £125k 0% 3%
£125,001 – £250k 2% 5%
£250,001 – £925k 5% 8%
£925.001 – £1.5m 10% 13%
£1.5 million + 12% 15%
* No stamp duty is paid on property transactions costing less than £40,000 as these are considered low value and not reported to HMRC.

Stamp duty doesn’t have to be that high. We survived just fine with a simple stamp duty tax on buying a property of 1 percent until 1997, when Gordon Brown got involved.

There’s no reason we can’t admit that the great stamp duty experiment was a mistake.

That 1 percent was levied on all houses costing more than £60,000 and stamp duty was not seen as a problem or major hurdle to buying.

But then—to cut a long and complicated story short—Chancellor Brown cashed in on his real estate boom by adding extra barriers, Chancellor Osborne removed the odd record system, but couldn’t resist trying to woo the wealthy and middle-class commuter families. drenching, and Chancellor Sunak were bundled into a temporary vacation that poured gasoline on the pandemic real estate market flames

The problem with trying to convert stamp duty from a bad tax to a not-so-bad tax is that we’re not starting in a great place.

The potential gain for any theoretical homebuyer from a tax cut is disproportionately skewed toward those buying the most expensive homes, who clearly tend to be wealthier. Starters have little to gain, because an exemption already makes the most of the tax. This has made making meaningful cuts a hard sell for years.

The house price-to-profit ratio continues to rise and prices are now more than 7 times the median income, well above the long-term average of 4.5.

The house price-to-profit ratio continues to rise and prices are now more than 7 times the median income, well above the long-term average of 4.5.

The house price-to-profit ratio continues to rise and prices are now more than 7 times the median income, well above the long-term average of 4.5.

Meanwhile, house prices are at record levels compared to wages and it is feared that stamp duty cuts will push them up.

Still, it is important to note that many of the hasty reactions to the idea of ​​a cut are based on stamp duties and that a permanent cut is potentially very different from a temporary temporary cut in terms of market disruption.

A cut in stamp duties also brings a dose of push-me, pull-you economy. The Bank of England has quickly raised interest rates to fight inflation and lift the cost of borrowing to reduce demand and slow the economy. A reduction in stamp duties drives fiscal policy in the opposite direction.

But there’s an argument that it might not be a bad thing to reduce the monetary flat-rate hurdle to buying a home — in the form of deposits and stamp duties — while limiting the amount people can borrow through higher mortgage interest rates.

Keeping house prices in check through higher interest rates, while lowering the tax paid on buying a house? I could see people going for that, whether it’s the plan or feasible is another matter.

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