Azara Blog: Government raking in money from stamp duty

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Date published: 2005/11/02

The BBC says:

Residential property buyers paid the government a record £5.5bn in stamp duty in the last financial year.

Figures from HM Revenue & Customs show the government raised more from the tax than from the duties paid on beer and spirits.

The Conservative party spokeswoman, Caroline Spelman, said stamp duty was being used "to enrich the Treasury at the expense of home owners".

But the Treasury said the increase was due to the big rise in house prices.

In his budget earlier this year, the Chancellor raised the starting threshold for the tax from £60,000 to £120,000.

At the time, the government estimated that as a result half of all first-time buyers and 45% of all house purchases would become totally exempt from stamp duty.

It also estimated the change would cost it £250m.

Stamp duty is currently charged at a rate of 1% on homes sold for between £120,000 and £250,000, 3% on properties worth between £250,000 and £500,000, and 4% on those selling for more than £500,000.

But with the dramatic rise in house prices over the last decade, the tax has generated huge sums of money for the government.

Back in 1996-97, it raised just £675 million - roughly an eighth of its current levels.

John Whiting, a senior tax partner at the big accountancy firm PriceWaterhouseCoopers, said it was an example of what economists call "fiscal drag":.

"Prices go up so taxes go up," he said.

"It is a great example of raising taxes without raising the tax rates."

Of course if you don't index thresholds at the same rate as increasing prices then the overall tax take goes up. But stamp duty is even worse because the tax rates are absolute, not marginal. So, for example, a house selling for £240000 has a stamp duty of £2400 and one selling for £260000 (the kind of rise easily seen in a year in recent times) has a stamp duty of £7800, so more than a tripling of tax even though the price has only gone up 8%. This is more than "fiscal drag", it is highway robbery (welcome to "ripoff Britain" courtesy of Gordon Brown). It's amazing nobody (the Tories, the BBC, ...) ever points out the stupidity of this particular feature of stamp duty.

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