Azara Blog: UK house stamp duty

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Date published: 2005/01/29

The BBC says:

Government income from residential stamp duty has risen nine-fold over the last 10 years, new figures show.

Spiralling house prices have seen revenue go from £465m in 1993-4 to £4.3bn in the current tax year.

The Halifax Bank of Scotland poll found 81% believed the current tax regime was unfair on new buyers.

Seven in 10 thought the threshold for stamp duty, which currently stands at £60,000, should be raised to reflect rising house prices.

The bank has worked out that the lower stamp duty threshold of £60,000 would now be £156,900 if it had risen in proportion with house prices.

Stamp duty would not be so bad if it were not for its totally idiotic implementation. The rate is (currently) 1% on sales over £60000, 3% on sales over £250000 and 4% on sales over £500000. But this rate is absolute, not marginal, so for example at £250000 if you add £1 to the purchase price of a house you pay 3% - 1% = 2% more of tax, i.e. £5000. This has got to be the largest marginal rate of tax anywhere, and only the British government would have dreamt it up. They must have a hard time doing maths in the Treasury, so difficult formulas like

tax = sum_i ( (rate_i - rate_{i-1}) * max(price - threshold_i, 0) )

are beyond their ability.

Needless to say the rates and thresholds are in any case totally arbitrary, as with all taxes. The Labour government introduced the higher bands because Tony Blair promised no increases in income tax rates so they had to find the money elsewhere, and those horrid middle class home owners are an obvious target (along with those horrid car drivers and horrid smokers). Of course Gordon Brown himself should take the blame for the introduction of the extra bands while maintaining the rates as absolute rather than relative.

Concerning the direct point in the story, the reason thresholds do not keep up with inflation is because this is an easy way for governments to increase taxes while claiming they are not. So this is one of the many cynical Labour "stealth taxes".

Note that the BBC does not give any of the real facts behind the story, and print what reads just like a press release from the Halifax.

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