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Is Stamp Duty Land Tax penalising home owners unfairly?By: Sharron Carle

Is Stamp Duty Land Tax an unfair burden on homeowners

When George Osborne delivered his budget speech in March 2012 he talked about ensuring fairness in our system of taxation, announcing measures for tackling avoidance. He singled out Stamp Duty Land Tax or SDLT, stating “a major source of abuse, one that rouses the anger of many of our citizens – is the way some people avoid the stamp duty that the rest of the population pays”. But is this true? Are people angry about stamp duty avoidance or has the avoidance arisen because people are angry about an unfair tax?

SDLT is a levy on mobility. It does not just affect the rich. It affects the ability of every average household seeking to move in order to cope with increasing family size, or to get into that all important catchment area or simply in order to find work. High deposits and hefty SDLT bills means moving home is costly and for some families saving enough money to do it is just unachievable.

On 16 September 2013, the BBC published figures on its website for average national house prices. It is of no surprise of course that houses in the northern counties are significantly lower than those in the south. An average hard working family buying a small 4 bed house in Wigan will pay £1,770 SDLT. A family buying in Watford would pay £12,000 SDLT for the same house. That’s £10,000 more tax for what in essence would be achieving the same standard of living. Is that fair?

But it is not just unfairness in the amount paid. Timing is a factor too. It seems unjust to levy a tax at a time when people need cash the most. SDLT must be paid within 30 days of buying a property and adds to the acquisition cost. Lenders will not cover SDLT costs, meaning more money must be found to move house. I am not sure that our Chancellor acknowledges how long it takes for the average working family to raise £10,000 out of their taxed income. It is quite understandable why there is a shortage of first time buyer houses - the families that live in them can’t afford to move out.

Up the scale, we can see similar discrepancies between urban and rural areas. For £2,500,000, someone could expect to buy a flat in central London and pay a whopping £175,000 in SDLT for the privilege. Up in Derbyshire, that same amount would buy a reasonable sized estate with 100 acres of land, easily capable of being put to some commercial use, such as letting parts to a local farmer for grazing livestock. As commercial activity removes the land from being wholly residential, the SDLT rate drops from 7 per cent to 4 per cent. This means a purchaser would save themselves £75,000 by moving to the country. Is that fair? They have after all spent the same amount on a home?

The quid pro quo is that the London flat owner is likely to benefit from a relief against his liability to pay any capital gains tax on selling his home, whereas the Derbyshire estate owner is likely to have to pay capital gains tax at rates up to 28 per cent applying to the surplus land over and above the property’s gardens.

It is no wonder people feel that they are not paying tax equally with other people in the country and that they may be more inclined to seek out ways to minimise it.

In the days before Gordon Brown, when stamp duty rates where 1 per cent or 2 per cent, tax advisors rarely encountered people seeking to avoid paying stamp duty on their homes. However, as rates increased, people became more reluctant to pay and the schemes became prolific.

The Mirrlees Review, published in September 2011 by the Institute of Fiscal Studies, called for a reform of SDLT describing it as “highly inefficient” and “discouraging mobility” adding that “its ‘slab’ structure - with big cliff-edges in tax payable at certain thresholds - creates particularly perverse incentives.

In my view, the level at which stamp duty becomes payable should be kept in line with average house prices throughout the country and on this footing, the threshold should start at around £500,000 or at least stay at 1 per cent up to this level. The slab system should be abolished so people are taxed more fairly, in a similar way to income tax, and the tax should be payable at the same rates on the value of the entire purchase price whether there is extensive land or not. Finally, would it not be fairer for cash-strapped Britain to pay the duty on sale rather than purchase when funds may be more available? Or why not scrap the system altogether and have a special low rate of Capital Gains Tax for sales of residential properties with no limit on property size?

About the author

Sharron Carle is a Consultant Solicitor at Keystone Law and has particular expertise in Stamp Duty Land Tax mitigation, planning and complianceSharron Carle is a Consultant Solicitor at Keystone Law and has particular expertise in Stamp Duty Land Tax mitigation, planning and compliance.

Features October 2013

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