Britain’s new regime for stamp duty — a tax placed on buyers when they purchase a property — is stopping the country’s wealthiest people from buying houses.
Lender Halifax added that while the new stamp duty tax system, which came into effect only 1 year ago, is having an adverse effect on properties over £1.5 million ($2.3 million), it is actually saving £4,500 ($6,796) in cash for the average homeowner.
“The changes made to stamp duty a year ago have been of significant benefit to many buyers,” said Craig McKinlay, mortgages director at the Halifax in a statement.
“Only those purchasing the most expensive homes are worse off. There is some evidence that the top end of the market has been adversely affected by the changes with sales over £1.5 million falling by twice as much as the market as a whole.”
At the end of 2014, UK Chancellor George Osborne unveiled one of his biggest Autumn Statement surprises. He announced that as of December last year, Britain would have a new stamp duty tax system that resembles how income tax is collected. The following rates are now applied to properties of certain selling prices:
- 0% — Up to £125,000.
- 2% — £125,001 to £250,000.
- 3% — £250,001 to £925,000.
- 10% — £925,001 to £1.5 million.
- 12% — Above £1.5 million.
This has resulted in savings for anyone buying a property under £925,000 while the change has boosted tax for those buying homes over £925,000.
For example, for an average family home at £275,000, buyers under the new system would pay £3,750 in stamp duty, compared to £8,250 under the old system — a saving of £4,500.
The average price for a property in Britain is at £286,000, according to the Office for National Statistics. In London, the average price for a home is now at a huge £531,000.
In Britain’s Autumn Statement this year, Osborne added another change to the stamp duty system — buy-to-let properties and second homes would now have a 3% surcharge on stamp duty from April 2016.
However, Halifax’s McKinlay pointed out that the stamp duty changes hasn’t necessarily helped the housing shortage issue in Britain and therefore dampened prices because average buyers — more ordinary Brits that are buying properties over £925,000 — are saving so much on stamp duty, it’s bringing more people to the market.
“The failure to index the start point for stamp duty in line with house price inflation has dragged more buyers into the tax net in recent years,” said McKinlay. “Buyers in London have been particularly badly affected with the capital accounting for an increasing and disproportionately large share of stamp duty revenues.”
Halifax estimates that the total tax levied from stamp duty in the UK jumped to a record £7.5 billion in 2014-15.