I am delighted at the news regarding Stamp Duty Land Tax changes. I and many other have been campaigning to get rid of the ‘slab tax’ for many years as it was simply ridiculous. How can the tax on a property purchased at £250,000 be £2500, yet an extra £1 on the purchase price cost the buyer an additional £5000 be remotely rational? No more. As from today, you only pay the higher rate on above the threshold, not on the whole purchase price.
On average, someone buying a home in England and Wales will now pay £4,500 less in stamp duty. The new system will also smooth out the steps – or sudden jumps – in existing stamp duty thresholds. Make no mistake, the resultant effect will also be to reduce the sudden jumps in house prices too. Under the old system, these huge jumps in costs to buyers due to stamp duty thresholds was a major issue. For example a property that should be worth £260,000 will never sell for more than £250,000 as this extra £10,000 in the selling price will cost a buyer £7,800 in tax – that’s £5,300 more than if they paid £250k. Now, prices no longer need to jump to negate this effect. This is very good news.
Another benefit is that first time buyers don’t need to save as much as they would have needed to do before today. At say, £300,000 they will be saving £5000 which can now go towards their deposit rather than the Government coffers.
Mr Balls of course highlights the fact that as 98% of buyers will be better off, some £800 million of tax revenue will be lost. He may be correct, but I think it more likely that transaction volumes will increase mitigating any losses. It will allow more people to buy and encourage more people to move. It will stabilise the housing market and make price changes more predictable negating the bottle necks and so called dead zones where nothing sells for a few thousand above a threshold. Whether it encourages more new homes to be built remains to be seen, but I suspect developers will seize upon buyers renewed ability to buy sooner.
So what of those who will be hardest hit. This replacement to the ‘Mansion tax’ will indeed cost the wealthy dearly, a concept which won’t cause sleepless nights for the 98% of buyers, aka voters, who benefit. In my experience, transactions at this level adapt. Buyers will factor this extra cost into their offers and vendors will build margins into their asking prices. Agents are some of the most adaptable people in the business world and by January, they will have evolved.
Whether Mr Osborne used this emotive issue to gain votes or to thwart Mr Balls is unknown. Whether it is economic sense or political gain is for Robert Peston to decide. What I do know it that what the Government has delivered is exactly what industry has been calling for, though perhaps the sting for the high end properties was as unexpected as the speed of implementation.
In prime London, I am sure there will be a lot of re-negotiations under way this morning, however, remember that these properties have enjoyed growth like nowhere else so a small reduction in sellers as yet unrealised profit won’t prove too costly and for once, the 98% of us who haven’t benefited at last have something to celebrate.
This is a very good day for the housing market, for buyers, sellers and of course estate agents.
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Eric Walker, MD
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