Smoke a pack of cigarettes a day and over the course of 20 years you will have paid an extra £51,000 of tax compared with a non-smoker. But there is an antisocial habit which could end up costing you far more: a fondness for moving house.
I sat down and worked out how much extra tax a friend of mine – a doctor – has paid in stamp duty, having moved four times in the two decades that I have remained at the same address. It came to nearly £80,000.
What it is about moving house that deserves such hefty attention from the taxman I am not sure. Is the government trying to tell us we should stay living where we are and not move house to provide extra bedrooms for a growing family or to take up employment in another part of the country? Whatever it is, it looks as if house buyers will enjoy a brief respite in coming months as the Chancellor introduces a holiday in stamp duty for homes priced below £500,000. That will save homebuyers up to £15,000, and I am sure will be greatly appreciated.
But a brief holiday will do little to reverse the huge rises in stamp duty over the past two decades. When Gordon Brown became chancellor, stamp duty was levied at a flat rate of one percent on all homes sold for more than £60,000. Given how much lower house prices were in those days, you could buy a substantial family home and pay no more than £2000.
Since 2014 stamp duty has been levied at a graded rate of up to 12 per cent. If it is a second home, or is being bought by a company, you can add on another three per cent. The bill for a £2 million property comes to over £150,000. It could be worse: the government could levy VAT on new homes, as do some other countries, which would mean home buyers paying £400,000 in tax on a £2 million home.
Nevertheless, stamp duty represents an extraordinary amount of tax for many people to pay in a single go. No wonder so many of us avoid paying it – by the simple expedient of not moving home. Housing transactions have never recovered from the 2008/09 slump, and even before the Covid 19 crisis were running at no more than two thirds the level they were when Gordon Brown was Chancellor. According to the Economic and Social Research Council every two per cent rise in stamp duty results in a 40 per cent fall in sales transactions.
For a while, chancellors managed to get away with it – jacking up stamp duty brought in more revenue in spite of falling sales volumes. But no more – last year revenue from stamp duty plunged six per cent to £8.4 billion, largely as a result of falling sales volumes at the top end of the market.
Successive chancellors managed to push up stamp duty thanks to high house price inflation. When prices were galloping up at 10 per cent or more per annum no-one much cared about a tax of two or three per cent. Even when buyers of upmarket homes were paying five percent in stamp duty it didn’t matter too much – the increased value of your home was effectively paying your tax bill for you within months.
But the rules have changed now that house prices are static. Homes have become a little more like cars, where you accept you will suffer a big hit if you sell up quickly. Perhaps that was part of Gordon Brown’s and George Osborne’s intention: to use stamp duty as a means of reining-in rampant house price inflation.
If so, the ruse seems finally to have succeeded: along with reforms to the taxation of buy-to-let property investors are a lot less interested in property now than they have been for much of the past two decades. The trouble is stamp duty hasn’t exactly brought house prices down to a more affordable level – it has simply added to the already-frightening costs of buying a home.
A fairer way to tax property would surely be an annual levy based on a percentage of the value of a home – and which would be payable by all property-owners, not those who are currently buying a home. Either that, or transfer the tax to sellers – abolish stamp duty and simultaneously remove the capital gains tax exemption on main homes. Such are the political problems of doing this, however, that I suspect a brief stamp duty holiday is all we’ll get.