CML Examines Impact Of UK Stamp Duty Holiday

by Jason Gorringe, Tax-News.com, London

05 January 2010

The total cost of the temporary stamp duty holiday on house purchases has been much smaller to the UK government than originally anticipated, according to the Council of Mortgage Lenders (CML).

In September 2008, when the government temporarily raised the nil rate threshold for stamp duty from GBP125,000 to GBP175,000, the CML estimated that this would mean the proportion of homebuyers who would not have to pay would rise from a quarter to a half. In fact, at its peak in the first quarter of last year, the concession benefitted even more than this, with 57% of all those buying with a mortgage not having to pay, according to the report.

However, modest house price increases and a shift in the mix of houses bought (towards higher value properties) brought this down to 51% in the third quarter of last year.

According the CML, the flat nature of the concession - the same in all regions of the country – caused wide geographic variations in the effect. Those areas with generally lower house prices saw the greatest benefit.

In 2008, just before the threshold was raised, the Northern and Yorkshire and Humberside regions both had the greatest proportion of exempt transactions (purchases under GBP125,000), but in each of these regions this was still under half.

A year later, with the higher threshold in place, over three quarters of transactions in the North were exempt from stamp duty. However at the other end of the scale, London predictably saw much less benefit. Before the measure was introduced, only 2% of transactions were exempt. A year later, with the higher rate threshold in place, still only 17% of London borrowers escaped paying. London accounts for 13% of house purchase transactions, but only 6% of borrowers were helped by the stamp duty concession.

When it introduced the concession, the Treasury estimated that the cost in foregone revenue would be GBP615m. At that point the concession was due to last for one year (it was subsequently extended until December 2009).

In fact, the CML estimates suggested a total final cost to the government of GBP356m in the first 12 months – a little over half the government’s initial estimate, as a result of the low volume of property transactions over the period.

Concluding its report, the CML emphasized its position that there should be a fundamental reform of stamp duty.

“It is a tax that discourages labour mobility, and its 'slab' structure has the effect of causing transactions to 'bunch' just under each of the tax thresholds. While abolition would be the best option, a move to a graduated structure would be an improvement on the current system, even if done on a cost-neutral basis."

"While the temporary concession was welcome as far as it went, it is disappointing that the government has not sought to implement this desirable reform of an anachronistic tax,” the CML stated.

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