What does the chart show?
That 2.7m more properties have been dragged into a higher 5 per cent stamp duty price band since 2015, as house prices rose but the thresholds for paying the tax remained unchanged — and that most of those homes are located in the south of England.
According to research from property website Zoopla, which looked at homes in England, the number of properties that would fall into the 5 per cent band for the purchase transaction tax has risen from 6.9m in 2015 to 9.6m in 2019 under the so-called “fiscal drag” effect.
The chart shows that the proportion of homes in the south of England (including the south-east, east of England and the south-west) falling into the 5 per cent bracket has risen from 48 to 64 per cent over the four-year period. In London, 82 per cent of homes are in the tax band, up from 76 per cent in 2015.
But I thought stamp duty had come down for most people?
It has. The government reformed the structure of the tax in December 2014, so that buyers only paid the higher rate on the portion of the property value that exceeded a certain threshold. This so-called “slice” system replaced the more distorting “slab” system under which, if a property fell into a particular rate band, the buyer would pay that flat rate on the entire value.
Together with new rate bands introduced at the same time, the changes meant that anyone buying a home worth up to £937,000 — more than 95 per cent of households — would pay less stamp duty than previously, while those at the top end paid more. This was followed in 2016 by a stamp duty surcharge of 3 per cent on buy-to-let and second homes.
Another big change came in 2017, when the government brought in a relief for first-time buyers on properties below £500,000. According to Zoopla research, the policy helped about 214,000 buyers save money in 2018-19.
Despite pulling many out of paying the tax or reducing the amount they pay, stamp duty has become an increasingly important revenue raiser for the government, as receipts have more than tripled in the past decade from £2.7bn in 2009-10 to £8.3bn last year. Stamp duty was devolved to Scotland and Wales in 2015 and 2018 respectively and they are not included in the data.
The property market is slowing now — won’t this have halted the trend?
Prices in the southern areas of England most affected by stamp duty had initially risen then plateaued or fallen since 2015, so the rate at which properties enter the 5 per cent band has slowed. Early reports of how the property market is being affected by the coronavirus crisis suggest this trend can only continue.
Politicians could argue this supports a decision to leave rates where they are, since the problem is becoming no worse.
Yet Richard Donnell, research director at Zoopla, said that the size of the stamp duty bill faced by people in the 5 per cent bracket, particularly where they were buying a second home and therefore incurring a higher rate, was now psychologically high enough to prompt them to rethink a purchase.
“As soon as your bill gets to £30,000 or £40,000, all of a sudden that gets into the territory of doing your loft or an extension, which many people will choose to do instead. Stamp duty is becoming more of a southern tax and putting more moving decisions in the balance,” he said.
The relative irrelevance of stamp duty for the regions beyond the south of England was underlined by figures showing 76 per cent of homes in the rest of England would incur no stamp duty or the lowest rate of 2 per cent. Of the 15 per cent of sales that attract no stamp duty, the Northwest and Yorkshire accounted for half, he added. In London, just 5 per cent of homes fall into the zero or 2 per cent duty brackets.
