Budget 2010: Stamp duty boost for first-time home buyers

Source: www.theguardian.co.uk
Published: 25 March 2010
By Rupert Jones

Young people trying to get on the property ladder were handed a pre-election boost worth up to £2,500 after the chancellor scrapped stamp duty on homes costing £250,000 or less for first-time buyers.

The move will be funded by an increase to 5% in the duty on homes costing £1m or more, which will see buyers of these properties having to hand over a minimum of £50,000 in tax. The move was quickly dubbed by some as a "Robin Hood" tax on the rich.

The new £250,000 threshold, which took effect at midnight last night and will last for two years, means nine out of 10 people buying their first home will not be liable for the tax.

However, the Council of Mortgage Lenders warned that the stamp duty concession "looks like a tax loophole waiting to happen" due to the difficulties in monitoring which buyers are new to the property market.

Alistair Darling said: "The housing market has now stabilised and has begun a slow recovery. But many first-time buyers, particularly those without large deposits, still find it hard to get a mortgage.

"I want to help them, but in a way that is properly funded."

The announcement was generally welcomed by housing market commentators, who said it would put the dream of home ownership back within reach of thousands. But policing the new regime could prove a headache for the authorities. Accountancy firm KPMG said the Revenue & Customs' definition of a first-time buyer was strict, and appeared to exclude those who have ever owned a property anywhere else in the world, and people who have previously jointly owned a home and were hoping to buy with a new partner.

The change will lift the average UK home out of the stamp duty net. According to the Nationwide and Halifax, the typical home costs a little over £160,000.

The National Association of Estate Agents said: "This announcement has added a new rung to the property ladder, one within reach of thousands of young families."

Stamp duty is currently charged at 1% of the purchase price on properties costing between £125,000 and £250,000, although from today, first-time buyers are exempt from this band.

People buying a property for between £250,000 and £500,000 have to pay 3% of the purchase price in stamp duty, while the tax is charged at 4% on homes costing more than £500,000.

The new 5% band on homes costing more than £1m will have the biggest impact in the capital. Estate agent Marsh & Parsons said it would "hit Londoners hard". Some agents claimed the move would trigger a rush of million-pound property owners selling up in the coming months to beat the tax rise.

In Kensington, 48% of all properties are worth more than £1m, according to the website Zoopla.co.uk. Nicholas Leeming, commercial director of the website, said: "Taxing the rich makes a good headline, but it won't raise much money for the government's fiscal black hole."

The stamp-duty cut is projected to cost the Treasury £230m in 2010-11 and £290m in 2011-12, while the new stamp duty band on £1m-plus properties is predicted to raise £90m in 2010-11, £70m the next year and £230m in 2012-13 – leading some to wonder if the government is anticipating a boom in the prime property market.

Meanwhile, some commentators said the government risked creating huge distortions in the market at the £250,000 threshold, at which point 3% stamp duty kicks in. Yesterday's announcement in effect casts a shadow over properties worth just over this amount. Someone buying a home for £251,000 will have to pay stamp duty of £7,530, while a purchaser of a property costing £249,000 pays £2,490 – or nothing at all if they are a first-time buyer.

Accountancy firm Grant Thornton was one of the many to home in on potential problems over who is, and is not, a first-time buyer. Karen Campbell, the firm's head of stamp taxes, said a clear definition must be established, adding: "A similar measure in the US led to mass exploitation of the relief and substantial costs to government."