Boris Johnson’s stamp duty plans effects

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WHAT WOULD BORIS JOHNSON’S STAMP DUTY PLANS MEAN FOR YOU?

In the last five years, the property market has been battered by changes to stamp duty. It’s been hiked at the top end, abolished at the bottom, and boosted for landlords, leading to a slowdown in sales, a sluggish market and a higher take for the Treasury’s coffers.

Now Boris Johnson has proposed a plan to overhaul the whole stamp duty system yet again. Reports suggest that Johnson plans to drastically raise the threshold for paying stamp duty from its current level of £125,000 to £500,000 at the same time as lowering the top rate from 12pc to 7pc. What does it mean for buyers and sellers?

According to analysis by Savills, Johnson’s plans would free over 300,000 property buyers from stamp duty, based on 2018/19 figures. Added to the number of properties sold that are already exempt from the tax, this means that a total of 651,500 transactions from last year wouldn’t have paid stamp duty.

This is equal to 71pc of residential transactions in England and Northern Ireland that would be exempt from stamp duty under the plans.

Savills has also estimated that raising the stamp duty threshold to £500,000 would cut out around a quarter of stamp duty revenue for the Treasury’s coffers, at £2.158bn.
It found that 41pc of stamp duty revenues from 2017/18 came from properties under £500,000, equal to £3.8bn. This total amount excludes the additional 3pc surcharge on homes under £500,000 and first-time buyer relief.
 

First-time buyers

The reforms would boost the buying power of first-time buyers. Currently, first-time buyers spending £300,000 or less on a property purchase will be free of duty. For first-time purchases worth between £300,000 and £500,000, no stamp duty is paid on the first £300,000, meaning a reduced rate is paid.Boris’ change would only affect those first-time buyers now paying that reduced rate of stamp duty, as well as those buying homes worth over £500,000, which would also pay less tax.After this change was made in November 2018, the Royal Institution of Chartered Surveyors found that there had been no significant positive impact on property sales directly as a result of this policy measure. It’s hard to see that this would boost first-time buyers any more than the previous reform did.However, first-time buyer sales have been growing steeply in the last few years, boosted by Help to Buy and also the Government’s clampdown on landlords, which means there is less competition to buy certain properties.

 

Home movers below £500,000

Those selling and buying homes worth under £500,000 would benefit hugely from Boris Johnson’s reforms. While George Osborne’s changes in 2014 lowered stamp duty for this group, this change would wipe it out completely.

This could also help improve transactions: stamp duty has long been seen as causing unnecessary friction in the market, and so this reform could boost activity. However, this part of the market has been the strongest for some time, particularly in the North and Midlands.
 

Home movers above £500,000

Estate agents will be cheering at Johnson’s plan to reverse George Osborne’s hated stamp duty changes to the top end of the market. In November 2014, the then Chancellor hiked stamp duty for homes worth more than £925,000, which had an instant effect of slowing the top end of the market to a standstill. Ever since then, transaction levels have languished, homeowners have been unable to sell and prices have dropped in many expensive areas.Cutting the top rate of stamp duty from 12pc to 7pc would likely reinvigorate the market. However, this wouldn’t last long, according to Lucian Cook, head of residential research at Savills. “There would be a sentiment boost for the housing market generally, and that could result in short burst of activity and house price growth but it won’t be dramatic. At the end of the day, rational economics will come in and look at the total cost of purchase.”

 

Downsizers

“These transactional taxes create friction and inefficiencies in the market,” adds Cook. If the changes get the property market moving again, then downsizers may be a big winner from the changes.Many downsizers are currently stymied as they can’t sell their large family homes to move into somewhere smaller as the market for these properties has seized up – largely as a result of the higher rate of stamp duty on homes over £925,000. This change could open up the market and get the market moving again.

Source: The telegraph