Aug
16

WILL STAMP DUTY SOON BE A THING OF THE PAST?

Calls for Scottish stamp duty reforms to be copied across the UK

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Britain’s most hated tax is about to be overhauled – but only if you live in Scotland

Will the UK be following Scotland’s footsteps?

However, there are hopes that the replacement of stamp duty North of the border, which will see the end of the hugely unpopular system of “highest rate of tax on the whole amount”, will be copied in the rest of the country.

“There’s a referendum on independence coming up,” said Ray Boulger, an expert on the housing market. “It will be an open goal for Alex Salmond if he can say to Scottish voters: look, we abolished this immensely unfair tax as soon as we had the power to do so but the Westminster government is happy to keep it.” To neutralise this threat, the Coalition could announce its own changes to stamp duty before the general election, Mr Boulger added.

Stamp duty is hated for two reasons. First, the amounts involved can be huge, preventing some families from moving when they need a bigger home and making it harder for people to move when they are offered a job in another part of the country.

Second is the unique way in which it is levied. Unlike income tax, say, where higher-rate taxpayers pay 40pc only on that slice of earnings above the threshold, stamp duty is charged at the higher rate on the entire sum if it is above one of the thresholds.

This gives rise to huge jumps in the tax bill at the various thresholds – £125,000, the level at which 1pc stamp duty becomes payable; £250,000, where the rate rises to 3pc; £500,000, above which 4pc is charged; £1m, where the rate is 5pc; and £2m, at which the rate becomes 7pc.

For example, if you buy a home for £249,999, just below the £250,001 level at which stamp duty rises from 1pc to 3pc, your tax bill comes to £2,500. But pay £250,001 and the cost shoots up to £7,500 – an increase of £5,000.

A bill passed by the Scottish Parliament last month scraps this system, replacing it with one that works like income tax. This will get rid of the sudden jumps in tax bills at each threshold. The new law is due to take effect in April 2015.

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The effect of stamp duty on the housing market has become more acute since the financial crisis. When first-time buyers could get 100pc mortgages, saving up the stamp duty didn’t take too long. Now, however, deposits of at least 10pc are required, with the stamp duty on top. Falls in house prices since the pre-crisis peak have also wiped out the equity in many people’s homes, so their savings are needed for a deposit when they move to another property and cannot be used to pay stamp duty.

We will keep you updated with any changes as and when they occur.

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