Will the Governments interference in the Property Market result in Unintended consequences?

So yet again we find ourselves in the middle of a squabble between the political elite in the lead up to the General Election when they all attempt to outbid each other in order to attract our votes.

House with cash and calculaterFirst the Liberal Democrats propose a Mansion Tax which then gets hijacked by Labour with a variation of the Tax then closely followed by the Tories with a change to Stamp Duty.

In order to assess their impact on an already unstable Property Market I will attempt to summarise each Tax and the impact it may have on the different elements of the population.

History of Stamp Duty

This is a tax charged by the government since the late 1600 when you buy property  and it  applies  to various types of transactions. Over  time up to the present the rates have been changed but  it was always charged as a percentage of the purchase price

Stamp duty was replaced by a Tax called Stamp Duty Land Tax (SDLT)

This tax  was  graded into six bands representing a percentage of the  purchase price.

  • Up to £125000………………0%
  • £125,000 – £250,000 ….. …..1%
  • £250,001 – £500,000 …. ……3%
  •  £500,001 – £1m ……………4%
  •  £1m – £2m …………………5%
  •  More than £2m …………… 7%
  • Homes that are registered to companies rather than individuals and cost more than £500,000 have a rate of 15%.

The  stamp duty was calculated on the whole Purchase price . This is unlike income tax, where you pay a graduated  rate on your earnings.

Property Tax CartoonThis results in large  jumps in the tax payable even if you only pay a little more for a property. eg, if you pay £250,000 the stamp duty bill is £2,500. But , if you pay £250,001 the stamp duty will treble to £7,500.03.

SDLT is self-assessed  so it is the responsibility of the  buyer to ensure the duty payable has been  accurately calculated . The return can be completed either as a hard copy or online. The  reality is that  most of this will be carried out by the buyers lawyers. The return must be submitted and the tax paid within 30 days of the effective date of the transaction, which usually will be  the date of completion on the property. If this is not complied with the buyers will be liable to pay a penalty plus interest on the sum due.


This will be an annual  levy on homes in excess of £2 Million pounds


in order to raise additional revenue from the rich to fund such things as  the NHS.

This on the face of it does appear to be fair and reasonable until you dig deeper into the mechanics when the unintended consequences will surface such as

  • The majority of homes in this bracket are owned by people who purchased many years ago in the South East and seen property prices rise higher than inflation so will be asset rich and cash poor. These people will generally be Pensioners on a fixed incomes or young families with low wages living in Terraced Property in London or the South East.
  • It will in all probability trigger a slump in the property market resulting in lower stamp duty receipts so the loss will be greater than the revenue actually raised by the Mansion Tax.
  • Entrepreneurs and wealth creating employers will in all likelihood  avoid London and the South East when creating jobs and will not invest their profits in Great Britain Plc
  • The stated objective of taxing the rich panders to the politics of greed and envy and takes no regard that it is the very people who are being targeted who are the engine room of the economy creating products and services which supply the Jobs which this Country needs in order to trade out of the debt that has been accrued. Those Businesses and people will merely relocate to a lower tax Country from which to operate.

In order to mitigate the fallout it appears that the proposed tax will have exemptions incorporated with delayed payments where the tax will only be payable on sale or  death. This appears to be a death duty by another name. If its payable on sale then the property will merely be retained and not sold ensuring that it will not even come to market which will result in a shortage of these type of properties.

It is also possible that with the burden of the tax being added to the property it will be unsellable because the sale price will be less than the tax due. This will affect the inheritance of surviving members of the family thus adversely affecting the Property Market many decades into the future.

House viewed through a doorClearly it will tax the less well off and not the target of the Wealthy

It is unlikely that such a Tax will even raise the revenue projected since it is on the assumption that values of Property will go up whereas we have seen in the very recent past that values have decreased sometimes even lower than the price actually paid for the property.

This appears to be yet another excursion into the property market which is neither needed or wanted by the majority of people and will have a disastrous affect on the market similar to the Home Information Pack (HIPs) project which was dumped by the current Government thereby helping the market to recover.

The Reform of Stamp Duty

The Governments autumn statement  contained  a surprise reform of stamp duty . Effectively from midnight on 3rd December 2014 anyone buying a property in the UK   face a new set of regulations in order to bring Stamp duty and the way it affects the property market into the 21st Century

Why was there a need to carry out this reform?

It seems that people were unhappy with the way the tax was applied rather than the rate.

HM Revenue & Customs (HMRC) used a “slab structure” meaning  that if a property falls into one particular band the entire cost is taxed at theHouse on Hand Cash on Hand relevant rate. See the above example to understand how this affected the calculation.

Specialist Property Lawyers, Mortgage lenders , estate agents and other stakeholders in the Property Market  have long argued that this skews  the market, with house prices bunched just below the SDLT thresholds.

What has been reformed?

The slab structure has been scrapped and replaced by a graduated scheme similar to the way income tax is calculated

The new stamp duty rates at different band levels will apply only to the part of the property price that falls within that band, so no longer will there be a huge jump in stamp duty, for instance, on a property costing £250,001.

The new rules mean no tax will be paid on the first £125,000 of a property, followed by 2% on the portion up to £250,000, 5% on the portion between £250,000 and £925,000, 10% on the proportion up to £1.5 million and 12% on the balance

Those transactions that have exchanged contracts can choose which regime to apply

SDLT Comparison TablesSo for example an £180,000  purchase means  no tax is payable on the first £125,000, then 2% on the remaining £55,000, which is a total duty  of £1,100, versus £1,800 before the changes and a saving of £700.00

A £300,000 house purchase there will be no tax  payable on the first £125,000, then 2% on the next £125,000 (£2,500) and 5% on the last £50,000 (£2,500) which is a total duty of  £5,000 compared to £9,000 under the old system.











This on the face of it does appear to be fair and reasonable until you dig deeper into the mechanics when the unintended consequences will surface such as

  • Those buying a house costing less than £937,000.00 will benefit, or  approximately  98% of households.
  • Anyone spending more than £937000.00 will pay greater SDLT. So if your purchase price is £2.1m you will pay duty of £165,750 under the new regulations versus £147,000 previously or an additional duty of £18750.00
  • Constant meddling with the Property Market will damage confidence by creating uncertainty. This regulation does not have the consensus of all political parties and therefore may be changed following the general election
  • The Property Market may overheat following theDetached Housechanges where Sellers attempt to benefit from the changes by increasing their sale prices to properly reflect the actual market value of their homes
  • Demand for higher value properties may be depressed as buyers wake up to the fact that they will have to pay more duty than under the old system
  • The sale of Luxury high value properties may decline as prospective sellers may decide to carry out conversions to increase the size of their properties rather than go to the expense of moving
  • Those benefitting from the savings in stamp duty may well spend the windfall on improvements to the property thereby adding to an inflationary cycle.
  • Prices of properties currently on the market at pre autumn statement will be raised to properly reflect their market value and this will mean that First time buyers and indeed those who are looking to upsize as a result of a growing family may well find themselves priced out of their market.
  • This may result in more extensions and improvements being carried out to current properties which again will depress the middle market.

House with familyIn my view and on balance I think the reforms are long overdue however it seems to me that the way in which property is transacted is also archaic and in need of a complete overhaul in order to bring that too into the 21st century. It cannot be right that transactions can be allowed to take months to complete while Lawyers Estate Agents Mortgage Lenders and others argue over what is and is not required and who is or is not responsible for various aspects of the matter. Any number of transaction portals will not resolve that particular dilemma.


Any Ideas!!