Stamp Duty – can you fix Britain’s worst tax?

Stamp Duty – can you fix Britain’s worst tax?

Stamp Duty – can you fix Britain’s worst tax?

I hate stamp duty. It’s not that I object to a tax on purchasing property. It’s this distortive tax that has absurd cliff hangers meaning an extra penny on a house’s price can cost thousands. So on the back of last week’s Budget, which fiddled with the rates but did nowt to change the problem, I’ve a challenge for you – can you fix it?

Stamp Duty is plain stupid

As explained in the stamp duty calculator, the buyer pays the stamp duty (tax) based on the price of the property being bought.

Property price £125,000 or less – no stamp duty
Property price £125,000.01 to £250,000 and it’s 1% stamp duty
Property price £250,000.01 to £500,000 and it’s 3% stamp duty
Property price £500,000.01 to £1,000,000 and it’s 4% stamp duty
Property price £1,000,000.01 – £2,000,000 and it’s 5% stamp duty
Property price £2,000,000.01+ and it’s 7% stamp duty (or 15% if bought as a company)

What’s stupid is that the stamp duty tax rate is set at an absolute rather than marginal level. In other words, rather than you paying 1% stamp duty on everything above £125,000, you pay 1% on the whole amount. If you’re still confused, the following examples show the nonsense.

  • Property price £125,000. Stamp duty = £0
    Yet buy a property costing a penny more and you pay an extra £1,250
  • Property price £250,000. Stamp duty = £2,500
    Yet buy a property costing a penny more and you pay an extra £5,000

  • Property price £500,000. Stamp duty = £15,000
    Yet buy a property costing a penny more and you pay an extra £5,000

  • Property price £1,000,000. Stamp duty = £40,000
    Yet buy a property costing a penny more and you pay an extra £10,000

  • Property price £2,000,000. Stamp duty = £100,000
    Yet buy a property costing a penny more and you pay an extra £40,000
  • As well as the obvious unfairness this causes, due to this absurdity you get weird peaks and troughs in prices advertised around these levels, which distort the housing market unnecessarily.

    Time to stop the absurdity

    Before the last election, in the PM candidates’ debate on the site, we asked the five party leaders their views on this issue. Most avoided the question. The one exception was Nick Clegg,

    It certainly is unfair, and we have a long-term ambition to change it. But changing stamp duty would come with a huge price-tag unless you increased the rates, and – with the black hole threatening to engulf public finances already – this isn’t something we can do right now”

    See MSE leaders debate for full answers.

    So I think it’s time we tried to work out how to do it, without it costing people too much more.

    Setting out a challenge

    Quite simply, the tax needs to be reworked into a marginal tax system. In other words, like income tax when you go above a threshold. You should start paying more, but only on the amount above that threshold.

    So my challenge is – can anyone do this in a way taking the following three points as the brief?

    1. It’s revenue-neutral (ie, it raises the same amount of tax as now, no more nor less).

    2. It’s fair and roughly proportionate. While by definition some will need to pay more and some less – overall the burden should be of a similar level to the way it works now.

    3. It’s simple. There shouldn’t be too many bands to make it too confusing (a maximum of, say, 10).

    I thought about offering a prize for anyone who can do this, but then realised I would never have time to go through every single entry. So instead, I’d love to read your thoughts.

    Yet if any university economics or public policy type student wants to give this a proper go, including research on where house prices are now, and to do a paper on the back of it proposing a solution and has the backing of a senior academic to do so – let me know (beforehand) with a one paragraph pitch and I am happy to offer £1,000 as a prize to do so (we’ll work out the exact arrangements if someone pitches)

    To enter, email stampduty@moneysavingexpert.com

    Everyone else, do feel free to note your thoughts about this tax, and possible solutions below. Would making it a marginal tax create more problems than it solves?


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