Budget 2006 - Stamp duty rise 'derisory'

Gordon Brown's decision to raise the stamp duty land tax threshold to £125,000 in the Budget today has been described as "derisory".

Stamp will now be charged at one per cent of the value of all properties sold worth between £125,000 and £250,000 (except in disadvantaged areas), three per cent of the value of all properties sold worth between £250,000 and £500,000, and four per cent of the value of all properties sold worth more than that.

The four per cent increase in the lower limit of the tax is broadly in line with the annual increase in house prices - however, with no increase in the lower threshold for the ten years preceding last year's increase, analysts feel this rise will not be enough to boost the market.

In fact, by only increasing the lower threshold in line with house prices, the chancellor has ensured that he will gain even more revenue from properties trading above this level, while ever more homes move up into the unchanged £250,000 and £500,000 bands than was previously the case.

"While any increase in the stamp duty threshold helps alleviate pressure on first-time buyers, the fact remains that this tax is ripe for a complete overhaul," said Adrian Coles, director general of the Building Societies Association.

"The current 'slab' system means that you get big increases in tax once you jump over a threshold. It also means that there is an artificial grouping of sales just below each threshold. A graduated system would avoid this."

The Royal Institution of Chartered Surveyors (Rics) went further.

"The rise [in stamp duty] is so small as to be derisory and represents a squandered opportunity," it said today.

"Rics is extremely disappointed that the chancellor has not gone further and raised the threshold to £150,000 as Rics has consistently argued over recent years.

"Furthermore, Rics is dismayed that the chancellor has once again not seen fit to address the fundamental structure of stamp duty, which distorts prices in the housing market by creating pinch points below the threshold for each band."

The Council of Mortgage Lenders points out that 29,000 more households would have escaped stamp duty if the starting threshold had been £125,000 last year. But about 56,000 households became liable for stamp duty purely as a result of house price rises last year alone.

Rightmove, which monitors the vast majority of properties currently on the market, shows that just 0.5 per cent of the properties on the London market fall between £120,000 (the old stamp duty threshold) and the new threshold of £125,000. Nationally, this figure rises to 1.8 per cent of the market - but it is a tiny proportion, and unlikely to have an impact on the market.

"The new threshold of the stamp duty will not affect the housing market," Rightmove said today.

"The supply of property under £125,000 is very limited. Affordability constraints will reach a level where buyers’ ability to pay more for their home will be limited by the level of their wage increases.

"This is especially true for first-time buyers who have traditionally formed circa 40 per cent of all buyers. While the market is less dependent on them than before, the threshold would have to be set at £166,000 for 40 per cent of property for sale across England and Wales to be excluded all together from the burden of stamp duty. At a regional level the threshold would be highest in Greater London (£238,000) and lowest in the north (£128,000)." XXX