According to new figures, the average price of a house in the UK has now surpassed the 1% stamp duty threshold of £250,000. This lower bracket starts at £125,000 and stops at £250,000, meaning that any houses above that figure will have to pay a much bigger 3% stamp duty tax.
Property website, Rightmove, has reported that the average asking price for a house has increased to £251,964 in England and Wales, a huge £16,223 more than this time last year. This means that the average house now falls into the 3% stamp duty bracket. The difference in the two brackets can make such a huge difference, with home buyers either having to pay, for example, £2,500 or £7,500.
The Chancellor, George Osborne, has been urged to change the taxation thresholds in an attempt to prevent what could easily become a stamp duty crisis taking place. House Price Index figures show that the current increase in house prices is the biggest since November 2007.
Miles Shipside, director at Rightmove, said:
“The shortage of properties on the market and pent up buyer demand is helping to push prices over that £250,000 level. It does mean that moving is more expensive, so as well as higher prices, more buyers are now having to pay additional stamp duty as well.”
Demand for houses is also on the up, with the Help to Buy scheme enabling a lot more people to get on the property ladder, with lower mortgage options for those on smaller budgets, but some people fear this could cause a bubble in the housing market.
London Central Portfolio have called the situation a “looming stamp duty crisis”, where as Mr Shipside disagrees, as he feels the only thing that would create a bubble in the market would be people losing confidence in the market, which doesn't appear to be a likelihood in the near future.
Mark Carney, the Bank of England Governor, admitted that they were powerless to control the constantly increasing property prices in England. HMRC's Ready Reckoner stated that lowering the 3% stamp duty rate to 2% would end up costing the Treasury £1bn, while increasing the £250,000 threshold to £300,000 would cost £750m.
The number of new properties listed on Rightmove has increased by 18% up to over 27,000 and previous research from LCP found that the £250,000 threshold was forcing home-owners to sell their properties at a discounted amount.
Adam Challis, head of residential research at Jones Lang and LaSalle said:
“Immediately above and below each of the stamp duty thresholds, you get quite strong activity, and then you get a stickiness for prices just above”
The property market has really been boosted by the Help to Buy scheme and stamp duty has raised around £7bn in the nine months since the scheme launched back in April 2013. The problem lies however, in the lack of progression between the stamp duty bands. Without a regular evaluation system in place, the government ends up “giving with one hand and taking with the other”.