The higher stamp duty thresholds would be more than double their current level if they had risen in line with house prices, according to new research by Halifax.
Halifax has examined the impact of the stamp duty thresholds over the past ten years using house prices and home sales from the HM Land Registry and Halifax’s own extensive housing statistics database. Stamp duty revenue data has been sourced from the HM Revenue and Customs (HMRC).
The higher stamp duty thresholds – £250,000 and £500,000 – have been unchanged since their introduction in July 1997 despite a 140 per cent increase in house prices over the period to January 2011. If the higher stamp duty thresholds had been increased in line with house price inflation since July 1997, the £250,000 threshold would now be £600,000 and the £500,000 threshold would stand at £1,200,000.
The failure to raise the higher stamp duty thresholds has helped to drive a five-fold increase in the proportion of home buyers required to pay stamp duty at the higher rates over the past decade. Halifax calculates that the proportion of residential property sales worth over £250,000 and, therefore, attracting a minimum stamp duty rate of three per cent stood at 26 per cent in 2010; over five times the percentage of sales over £250,000 in 2000 (five per cent). There are an estimated 5 million homes in the UK that are now valued above the £250,000 stamp duty threshold compared with 875,000 in 2000.
Revenue generated from stamp duty
Stamp duty revenue rose by 12 per cent from £2.9bn in 2008/09 to £3.3bn in 2009/10. However, stamp duty revenue has more than halved since reaching a recent peak of £6.7bn in 2007-08. This is largely due to the declines in both the number of house sales and house prices over the period. 86 per cent of the total residential stamp duty revenue raised in 2009/10 was accounted for by the amount raised at the higher stamp duty bands. Ten years ago, the higher stamp duty bands accounted for 49 per cent of total residential stamp duty revenue.
Average Stamp duty paid
The average stamp duty bill has risen by 88 per cent (£838) over the past decade with home buyers seeing the amount they pay rise from an average of £955 in 2000 to £1,793 in 2010. The average stamp duty paid is currently equivalent to 5.4 per cent of average UK full-time earnings2, up from 4.2 per cent in 2000. Stamp duty is highest in proportion to earnings in the capital with the average stamp duty paid accounting for 19 per cent of a Londoner’s average annual full-time earnings. In contrast, the average house price in the North East remains below the threshold for the lowest stamp duty band.
First time buyers
An additional four in ten (38 per cent) first-time buyers (FTBs) are exempt from paying stamp duty due to the temporary increase in the starting threshold from £125,000 to £250,000. Overall, 95 per cent of first-time buyer purchases are now below the £250,000 threshold. Regionally, the South East has benefited most with nearly three in four (73 per cent) FTBs now exempt from paying stamp duty due to the doubling of the threshold.
At a local level, nine out of the ten local authority districts that have benefited most from the temporary increase in the starting threshold for first time buyers are in southern England3. First-time buyers in Croydon have benefited the most with 82 per cent of FTBs exempt from paying stamp duty due to the change.
Million pound properties
Just 1.1 per cent of residential property sales will be affected by next month’s increase in the stamp duty rate from 4 per cent to 5 per cent for homes worth over £1 million. Unsurprisingly, London has the highest proportion of million pound home buyers (4.7 per cent). The increase will add £10,000 to the total stamp duty bill for someone paying £1 million for a home.
Martin Ellis, Housing Economist at Halifax, said:
“There has been a substantial rise in the percentage of homebuyers paying stamp duty at the higher rates over the past decade, reflecting the combination of significant increases in house prices over the period as a whole and the fact that the higher stamp duty thresholds of £250,000 and £500,000 have remained unchanged since their introduction in 1997. However, it is encouraging that a number of steps have been taken in recent years to aid those looking to get on the property ladder, including the temporary increase in the starting threshold from £125,000 to £250,000 for first-time buyers.”
“The future for stamp duty continues to provoke much discussion with some advocating fundamental changes including index linking the stamp duty thresholds to house price inflation or even replacing the current system with an annual property tax. Any further changes to stamp duty will ideally reflect the economic benefits associated with promoting greater residential mobility.”
