Stamp duty means 498,000 fewer property sales

Thursday, 19 April 2007 12:00

The changes made to stamp duty in the years after Gordon Brown became chancellor have meant almost half a million fewer people have moved home.

That is according to new research from the Cebr think tank, showing increased stamp duty could be fuelling the reason for the property boom but could also make any downturn worse.

Cebr points out since 1997 the amount of money raised by stamp duty has increased from £675 million to around £7 billion in the current financial year.

The government introduced new, higher, bands for stamp duty when it came to power - initially seeing the tax double to two per cent of the value of more expensive homes.

This was raised to three per cent in 1998, three-and-a-half per cent in 1999 and four per cent in 2000.

As well as the increase in the amount of tax charged, rising house prices meant more and more homes were becoming liable for the tax and the higher thresholds of the tax.

While the lower threshold at which stamp duty is first charged at has increased from £60,000 to £125,000 since 1997, the higher thresholds at £250,000 (for three per cent tax) and £500,000 (for four per cent tax) have never been altered.

And this has distorted the property market.

"If you tax something, it normally affects people's behaviour," said Cebr chief executive Douglas McWilliams.

"And so housing transactions have run consistently below their levels during the 1980s housing upturn."

Cebr calculated stamp duty changes mean the number of property transactions has fallen by 498,000 over the decade.

Stamp duty has also contributed to the lack of supply on the UK market - pushing up prices - Cebr argues, as the heavy tax burden has led to an unwillingness to put houses on the market.

"Our model also suggests that higher stamp duties make house prices more volatile, by restricting supply in the upturn and by reducing demand in the downturn," Mr McWilliams said.

"With housing accounting for 55 per cent of private individuals' net worth, introducing an additional element of volatility into the housing market through this tax is dangerous. If and when the housing psychology becomes negative, it suggests that the consequences will be unnecessarily severe."

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