Are we all paying the price for property success?

By Andy Noton, Partner

House prices are on the rise. While on the face of it this is fantastic news for many, if you dig a little deeper the double-edged nature of property price rises is revealed. Welcome to the world of stamp duty.

Stamp duty strikes

The figures are in. More households than ever are being dragged into paying higher rates of stamp duty – and this number is on the rise. Around 25 per cent of homebuyers have been pushed into the 3% stamp duty echelon in 2014 already, thanks to booming property prices across much of the UK. This is a sharp increase in the 1 in 10 recorded in 2003.

A 3 per cent figure seems innocuous on the face of it, but with areas in the most desirable boroughs of London (Kensington & Chelsea and Westminster) now averaging £1.6m, that percentage jumps to 4 per cent, and packs a significantly heftier punch. Things don’t improve in the rest of the capital either; average property prices of around £490,000 mean that budgets of all sizes are still being hit for tens of thousands of pounds in property tax.

The burden of stamp duty is a rising issue across the rest of the UK (average price £260,000), with peaks in the south east of England (£320,000). More and more people are seeking the advice of property accountants when purchasing their first home or an investment.

Cause and [side] effects

Rising property prices are the root cause of the current issues with stamp duty. For years people have seen property investment as an easy way to make money. People who bought property decades ago found their investment exploding in value over the years, and investors who were able to take advantage of the price crash during the banking crisis are reaping similar dividends now. Prices are predicted to rise 8.5 per cent this year, with a further 7.8 per cent in 2015.

For cash solvent UK property investors the potential to make money can be higher than the initial outlay in stamp duty. It’s more important than ever to consider property management accounting to keep your portfolio in order. For new buyers searching for their first home the prognosis isn’t as positive. People at all levels of the property chain are being deterred from making new purchases, leading to stagnant housing pools outside of a few hyperactive spots around the UK. This directly contradicts the oft debated-about housing shortage, and leaves first or starter homes in lucrative areas out of reach of new buyers or smaller budgets.

The current rise in value means even properties at the lower end of the scale are being pushed into higher bands of property tax.

  • 1% on homes of £125,000-£250,000
  • 3% on homes of up to £500,000
  • 4% on homes of up to £1m

A recent report from Nationwide, the UK’s biggest building society, revealed some startling figures on the current state of stamp duty. In 2014 alone, the treasury had gathered £10.2bn by June. Compare this to 2007 when it had gathered £10.6bn by October, and the huge sums of money being generated by property taxation is immediately revealed.

It’s also important to remember that figures are somewhat distorted by the disproportionate value of property across the UK. Despite contributing about 42% of total stamp duty in 2013, London buyers accounted for only 15% of total property sales. In contrast, buyers in the north west of England accounted for one in 10 transactions, despite the house prices sitting firmly below the national average.

Is property tax reform on the horizon?

The three per cent stamp duty rate was initially introduced to target the rich, but since then the property landscape has changed beyond recognition, meaning that everyone from the average homebuyer upwards is being hit with tens of thousands of pounds of property tax.

From overburdened homeowners to MPs and financial experts, the general consensus is that something has to change. In September 2014 Conservative MPs are planning a back bench debate to challenge the existing rules on both stamp duty and inheritance tax. Nick De Bois (MP for Enfield North) and Dominic Raab (MP for Esher and Walton) are going to campaign for parliament to remove stamp duty on properties sold for less than £500,000.

Whatever the outcome, it’s clear that the majority of homeowners and buyers will be stuck with paying a property taxation premium for the foreseeable future.

If you’d like to learn more about our work as property accountants, or need some specific property tax advice, please do get in touch –, 020 7490 7766. 

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