Let's keep stamp duty

by Ed Bowsher on 15 October 2009  |  5 comments
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Estate agents want the government to suspend stamp duty. What nonsense!

Estate agents and other property players are calling for the complete suspension of stamp duty during the housing downturn. 

Special pleading or what? Obviously, estate agents want higher house prices. They think that the abolition of stamp duty will boost demand.  And that will mean more transactions and higher commissions for them on each sale. But I, for one, don't want to see another property boom anytime soon. I welcome the fact that house prices have fallen. 

Now people realise that investing in property is not a guaranteed 'get rich quick' scheme. What's more, it's getting easier for first-time buyers to afford a home. 

In fact, I'd be happy to see house prices fall a bit more next year. That'll make property more affordable for more people. 

Stamp duty has another plus point. It raises cash for the government at a time when the public finances are in a poor state. The government simply can't afford widespread tax cuts at the moment. 

So it makes no sense to abolish stamp duty. The '1808 coalition' of estate agents and landlords is wrong. 

A sensible proposal 

That said, I don't think stamp duty is perfect. The tax is structured in a very strange way. 

As things stand, if a property is sold for £174,500, no stamp duty is charged. But if the property is sold for £176,000, then 1% stamp duty is charged on the whole value of the property. So you'd end up paying £1760. 

Likewise, the rate goes up to 3% at £250,000. So if you sold a property for £251,000, 3% duty would be charged - that's £7530. But if you sold the property for £249,000, stamp duty would only be charged at 1% - that's £2490. 

That's a huge, patently nonsensical difference. 

It would make far more sense to structure stamp duty like income tax. 

Let's say a house was sold for £400,000. Stamp duty could be levied like this: 

£0 to £100,000: 0% 

£100,000 to £200,000:  2% 

£200,000 +: 4% 

Under this structure, the stamp duty bill for this home would be £10000. 

The crucial plus point would be that there would no longer be any incentive to price a home at £249,000 instead of £251,000 just to avoid stamp duty. 

Stamp duty's strange structure is known as the 'slab system.' The '1808 coalition' is campaigning to end the slab system, and, on that point, I'm completely on their side.

More: Why I like the 'mansion tax.'