The stamp duty holiday finally came to an end on the 24th March 2012 and buyers will now have to pay tax at 1% on properties priced between £125,000 and £250,000. The window, which had had been credited with much of the positive aspects in recent property figures is believed to have saved purchasers some £300m and economists are awaiting the impact of its closure with some trepidation.
While some property experts believed that purchases had slowed down prior to the closing of the window, figures revealed today by the Council of Mortgage Lenders (CML) prove that this was far from being the case.
The CML revealed that the number of first time buyers had increased by a significant 23% in January compared with the same month in 2011 and that resulted in £1.6 billion being approved for 13,200 new loans.
In addition, the UK’s biggest HomeBuy agents revealed that a record number of purchases went through on Friday the 23rd of March, the final day of the stamp duty window, with 129 transactions being recorded.
All of these figures will undoubtedly lead to a spike in property statistics for the first quarter of the year but does it mean that we are heading for a period of gloom as some economists are predicting?
Chris Smith, group direct mortgage manager of the Yorkshire Building Society revealed that his organisation increased its lending to first time buyers in 2011 and he believes that there are still plenty of market options open to them.
“FTBs are important to us – the proportion of our loans to FTBs is seven per cent higher than the market average,” Mr Smith said.
As for the Government, the First Buy Guarantee scheme has been introduced in the hope that it will be more of an incentive for first time buyers than the stamp duty holiday. The scheme is open to FTB’s with a household income of less than £60,000 who can raise a 5% deposit but many industry experts are critical. The initiative was been described in some quarters as ‘window dressing’ amidst allegations that it has an ulterior motive of helping the ailing construction industry.
“This is a very appealing prospect, but Osborne’s scheme won’t go beyond scratching the surface of the problem faced by the vast majority of first-time buyers, as it is exclusively for new-build properties and only around 11,000 buyers will benefit – a fraction of the overall number of potential first-timers,” said Nicholas Leeming of Zoopla.co.uk.
“While the availability of credit is slowly easing, it’s not easing fast enough to help those borrowers who don’t qualify. A step in the right direction these measures may be, but they’re merely window dressing the wider problem.”
One window has closed but has another opened? The remaining nine months of the year will only begin to tell what impact the stamp duty reintroduction and the First Buy Guarantee will have.
The Chancellor George Osborne has confirmed plans for a 7% Stamp Duty on properties purchased for over £2m while at the same time, he announced that the coalition government was planning a crackdown on methods employed to avoid Stamp Duty payments.
At first glance, it would appear that the higher level of duty applies to such a small proportion of property buyers that it isn’t anything to be concerned about but the clear aim behind the Chancellor’s statement is to have the brunt of Stamp Duty carried by those who can afford to buy homes at this level.
“It is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more,” Mr Osborne said.
He went on to confirm the plans will be put in place to stop the rise in practises used to avoid higher rates of duty. A popular method was to negotiate a lower sale figure before pushing up the price via the purchase of ‘chattels.’ Additionally, some properties over the £2m mark were being purchased via a limited liability company before selling on to an individual. The Chancellor announced that any properties bought through a company would now be subject to a 15% Stamp Duty charge.
While it may be fair to say that the number of buyers able to afford such properties represents a small percentage of the UK public, the figures involved in such sales are obviously significant and aid the property market as a whole. What effect therefore will this higher rate of duty have over time?
Figures released last week by the Land Registry are suggesting that sales of £2m plus properties are already tumbling. The figures confirm that in December 2011, 103 such properties were sold across the UK and that represented a fall of 18% from the same month in 2010.
These statistics were of course, produced for a period prior to the increase in Stamp Duty so could we expect falls of even greater percentages?
Property experts have been slow to comment on the Land Registry findings but there is concern that another element of the Budget will have a severe effect on sales to Overseas Property Investors. From April 2013, those investors will have to pay Capital Gains Tax.
“This can only make the UK less attractive to overseas investors,” said Toby Ryland of accountants Blick Rotherberg.
These are tough measures indeed but how much effect will they have on the overall property market?
The Chancellor has been accused of failing to recognise the severity of the first-time buyer crisis, by not extending stamp duty relief beyond March 2012.
Whilst the Government is trying to breathe new life into the ailing housing market, George Osborne has been criticised for not doing enough by boosting house building in the UK and the first-time buyer market.
Peter Spencer, chief economist to the Ernst & Young ITEM Club, said: “One area where the chancellor fell short of expectations was making the housing market more accessible to first-time buyers. The stamp duty tax relief will end in March 2012 as planned and there were no further measures along the lines of guaranteeing bank loans to first-time buyers.”
“Osborne gives with one hand, and takes away with the other,” said Peter Rollings, chief executive of estate agent Marsh & Parsons. “The failure to extend the holiday for first-time buyers will undermine the government’s own attempts to kick start the first-time buyer market across the country. While the new mortgage indemnity scheme may improve the accessibility of mortgage finance to many credit-worthy borrowers, first-time buyers will need to save for longer to pay the stamp duty bill as they move.”
Such kick start schemes include the revival of the right to buy scheme first launched in the 1980s. Under the scheme, two million council houses could be available to buy by tenants. Osborne has hailed it as “one of the greatest social policies of all time” that had been “slowly and stealthily strangled” by the previous Government. Under the scheme, families will be offered discounts of up to 50% on the market value of the property. The profits made from the sale of council houses will be used to build a new affordable home for each council house purchased.
“It will take three to five years for the newly built properties to come onto the market,” said Robin King, director at property firm Move With Us. “If there is a sudden large uptake of buyers, how does the government plan to address the lack of available housing? Social housing is often built in ‘uneconomic sites’, in areas that will struggle to attract buyers. Will this help to regenerate deprived areas, or will we end up with an oversupply of properties that cannot be sold?”
John Longworth, director general of the British Chambers of Commerce, said: “In cities and towns across England, regeneration projects are stalled, with a serious impact on local business confidence. The £400m Get Britain Building fund will help unlock progress on some of these sites, which will have a positive impact on a wide range of local companies involved in construction and its supply chains. Ministers must speed the fund’s implementation so we see more spades in the ground quickly.”
If you are lucky enough to own a second property then you may also be lucky enough to be receiving a council tax discount on that home. Some second homeowners enjoy savings of up to 50%, but under plans announced by Communities Secretary Eric Pickles, these discounts could soon be scrapped.
If the plans go ahead, councils will have the power to remove or reduce council tax relief if you own a second home whether it is occupied or empty. Eric Pickles went on to say that this money would help to keep overall council tax bills down.
Granny flats or annexes could also be in the firing line under new proposals where these properties could be seen as separate properties.
Eric Pickles also announced that he wants everyday families to cope with living costs and that by putting these plans into action the overall council tax bill of the average family would be greatly reduced.
He is also expected to stress that there are currently no plans to alter the rules for council tax relief that is made available in special circumstances such as homes being left empty because a person has died or moved into hospital or a care home.
In a move to protect family homes, councils will also be encouraged to give local homeowners discounts if they pay their council tax bills online.
At present, discounts on second homes and empty properties in the UK range from 10% to 50% and can be worth hundreds of pounds a year.
The government said the reforms would allow for a £20 reduction in the annual bill for a typical Band D property in England. The current average for a Band D property is £1,196.
Mr Pickles said: “Under Labour, council tax went through the roof.
“This government has scrapped Labour’s council tax revaluation and is helping (to) freeze council tax for two years.
“I want to do more to help everyday families with their cost of living, and protect family homes from tax increases.
“By removing the subsidised tax breaks for empty homes and second homes, we can cut £20 a year off families’ council tax bills by treating everyone equally and fairly.”
Stamp duty, or Stamp duty land tax (SDLT) to give it its full title, has a very long history. This tax was first introduced in the UK in 1694 although its roots can be traced back as far back as the sixth century and the Roman Empire. Stamp duty can be levied on property, but also shares too. It’s always been a relatively obscure tax and was always ‘just there’ and nobody really bothered much about it.
That is until 1997 when the Chancellor at the time, Gordon Brown, discovered its true potential. Rates were quickly inflated especially on property purchases. Back then stamp duty netted about £2.5b each year. Today it rakes in almost £9b!
If you are searching for a new home it’s important to understand stamp duty or at the very least how much you’ll be expected to pay. There is good news and bad news where this property tax is concerned.
The HMRC has set stamp duty thresholds in a bid to make the taxing of homebuyers a fairer system. Those buying a home with a value up to £125,000 will have zero stamp duty to pay. However, if you were to find a property for £126,000, you would be charged 1% stamp duty on the entire property value and not just the 1K difference. This threshold rises for first-time buyers to £250,000.
If you are looking to buy a home costing more than £250,000 you will most definitely have to pay stamp duty. Seasoned homeowners looking to buy a home costing between £125,000 and £250,000 will pay 1% of the purchase price in stamp duty, and this threshold continues to rise by 1% and is capped at 5% for homes costing over £1 million.
Another way to avoid paying SDLT is to purchase a brand new zero-carbon home and the threshold on this type of property is £500,000. The initiative applies to all homes purchased before 30 September 2012.
So, whilst you might not avoid SDLT altogether, it’s helpful to know how much you will be charged. Once you have found the house of your dreams and put in an offer, your solicitor will send you a statement showing exactly how much stamp duty you will owe. This amount is taken at the time of purchase with everything handled by your solicitor.
Eric Pickles, the Secretary of State of Communities and Local Government has spoken out about the so-called mansions tax that is being supported by the Liberal Democrats. In an interview with the Daily Telegraph, he talked about hardworking homeowners who “put a lot into this country and don’t take a lot out” and that the proposed mansions tax would be a “big mistake”.
“We as a Government have got to understand that middle-class families put a lot into this country and don’t take a lot out. It would be a very big mistake to start imposing taxation on the back of changes in property values, particularly with big regional variations… People will suddenly find themselves in a mansion and they hadn’t realised it was a mansion. If it is only going to be mansions, the kind of thing you and I would regard as a mansion, it ain’t going to raise very much.”
He also warned that the introduction of a mansions tax would require a huge amount of administration with a revaluation of property across the UK, a task that would cost in the region of £250 million. Mr Pickles added “It’s a red line for the Coalition. The Coalition has said unambiguously that we won’t be revaluing in the lifetime of this parliament.”
So, another day, another tax, and once again it seems to be the wealthy who are targeted. This time, however, it’s assets that are being put into the firing line rather than income. Tim Mongomerie, a writer for the Conservative Home website raises a few points on what Eric Pickles had to say about mansions tax.
- The best option for the Coalition would be to reduce the overall burden of tax. In the US, the Republicans realised that their nation had a problem with spending rather than taxing. Britain has exactly the same issues and yet George Osborne has raised a portion of taxes including VAT, CGT, green taxes in addition to introducing a bank levy. The UK hasn’t experienced a tax burden this high since WWII and it doesn’t seem to be helping economic recovery.
- If the overall burden of taxation isn’t reduced then the Government should address a rebalance of the tax system. As Ross Douthat has written: “Conservatives need to recognise that the most pernicious sort of redistribution isn’t from the successful to the poor. It’s from savers to speculators, from outsiders to insiders, and from the industrious middle class to the reckless, unproductive rich.”
- There are more effective ways of taxing wealth than the Liberal Democrats’ mansion tax with a ‘Z’ council tax band being a possible remedy.
The wealthy have long been subjected to high taxes. George Osborne is to be holding an assessment of how much money the 50p tax rate is actually generating. The review, to be carried out by the Inland Revenue, will be expected to conclude by the end of the financial year.
Mr Clegg has said he supported the chancellor’s decision to review the tax, but last week said: “When living costs are high, when people are really feeling the strain, of course it is right to prioritise help, where you can give help, to the millions of people who need that help the most and not prioritise help to a very, very small minority of people who don’t need as much help – in other words, the people at the very top.”
The UK government today announced their 2010 emergency budget to the house of commons and it makes significant changes to the taxation concerning income and capital gains from property.
- Income tax threshold raised by £1000 to £7475
- UK Economy growth forecasts reduced to 1.2 percent this year and 2.3% in 2011
- Capital Gains tax raised from 18% to 28% for higher rate income tax payers from midnight tonight
- Capital Gains Tax remains at 18% for low and middle-income savers
- Council Tax frozen for 12 months from April 2011
- Corporation tax to be cut progressively over the next few years
- VAT to rise from 17.5% to 20% from January2011
The rise in Capital Gains Tax (CGT) was expected by most to rise to the same level as income tax (40% for higher rate) – so this announcement will not come as a shock but maybe some small relief to those expecting a greater hike. Lower income bracket earners wil be relieved that the tax payable on the sale of property (other than a principle dwelling) will remain at 18%
Private landlords will also, no doubt, be calculating the impact on the rental sector that the changes to income tax and housing allowance may produce.
The effect on inflation, trade and unemployment will also have a bearing on inflation, affordability and access to finance – all of which will have a bearing on house prices over the next two years.
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If you’re wondering how the newly formed coalition government will affect the Capital Gains Tax payable on selling a house in the UK then you may be interested to hear that Citywire reported this morning that an increase in CGT is expected to be central to the tax reforms proposed by the new government.
Currently CGT is levied on the sale of assets, resulting in a profit (and after a £10,000 annual allowance) , such as the sale of a house. The current rate is an 18% flat rate (there was previously a scale) which Citywire this morning reports will rise to nearly 40%.
Citywire also claims that Conservative plans to raise the inheritance tax threshold will be dropped as will the Liberal Democrat proposal to levy a ‘mansion tax’ on high value properties worth £2,000,000 or more.
The new plans will be revealed in the George Osborne’s (the new Chancellor) emergency budget which will be held within 50 days.
Estate agent and landlords’ organisations have formed a pressure group called the 1808 coalition (in reference to the year the duty was introduced) to campaign for the total abolition of stamp duty on houses in the UK.
The coalition has been formed between the Association for Residential Letting Agents and the National Association of Estate Agents – both of whom have a clear interest in trying to get back to the ‘good old days’ when their businesses were booming due to the high volumes of house sales and dizzy capital growth.
Last year the chancellor suspended stamp duty for properties under £175,000 (by temporarily raising the qualification rate from £125,000) in an attempt to lower the entry barriers for first time buyers and encourage movement back into the housing market. This temporary suspension ends on 31 December 2009 but there have been calls to extend this further.
Peter Bolton-King, chief executive of NAEA, said that stamp duty prevents access to the housing market to first time buyers and that it unfairly penalises buy-to-let investors.
Some commentators have questioned the interests of the pressure group and suggested it is more self-interested lobbying than concern for UK residents or the wider economy.
Image courtesy of freedigitalphotos.net
Online property portal Look4aproperty.co.uk have announced a £1 billion loan package to stimulate the UK housing market by offering interest free loans to homebuyers to cover the costs of stamp duty, legal fees and other unavoidable costs associated with homebuying.
The scheme, backed by Hitachi Capital (UK) PLC, will be offered out through selected estate agents (presumably those with accounts to advertise their properties on look4aproperty.co.uk).
James Caan became the Chairman of look4aproperty last year when he took a 25% stake in the business through the investment arm of his business Hamilton Bradshaw. In a statement at the time Caan referred to ‘plans to announce a series of new products to kick-start the struggling UK housing market in the New Year’.
Caan and his business partner Aaron Turner, who built the business, believe that stamp duty is ‘one expense too far for many people’ as it cannot be bundled into the home loan. Their theory is that by making the moving process more affordable it will encourage more buyers into the market to stimulate activity and growth.
In a statement Caan said:
“This scheme gets rid of those financial obstacles which are holding up the housing market. This means that thousands of people who have been putting off moving or buying their first home can now climb up the property ladder without further delays.”
Stamp duty explained
You pay ‘Stamp Duty Land Tax’ (SDLT) when you buy property.
New thresholds introduced from 3 September 2008 mean that if you buy property and the purchase price is £175,000 or less you don’t pay any SDLT at all.
If it’s more than £175,000, you pay between one and four per cent of the whole purchase price, based apon a sliding scale. The £175,000 threshold (up from £125,000) will remain in place up to and including 31 December 2009.