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Surveyors demand stamp duty reform

Monday, 6 March 2006 12:00 AM

Surveyors are demanding reform of stamp duty because it is 'unfair' to people on low-incomes and first-time buyers.

They are concerned about the 'slab' approach of the tax, whereby buyers pay between zero and four per cent of the value of their property to the government depending on which band it falls.

In a survey for the Royal Institution of Chartered Surveyors (RICS), 95 per cent of respondents say that stamp duty is in urgent need of review.

The 'slab' approach has caused house price clustering, tax avoidance and problems for first-time buyers, for whom up front costs such as stamp duty and raising money for a deposit are a major problem.

Properties valued between £1 and £119,999 are exempt from stamp duty, but the average price of a house in the UK is £185,788, which falls between the £120,000 to £249,999 band where stamp duty is one per cent.

Between £250,000 and £499,999 stamp duty is three per cent, while at £500,000 and above it is four per cent.

Instead, RICS recommends introducing a system like income tax where a higher rate of tax is only charged on the amount above a particular threshold.

They want to see the stamp duty nil threshold raised to £150,000, and a 5.5 per cent rate charged on amounts above £150,000.

Under this system, a buyer paying the average UK property price of £185,788 would pay £1,968 in stamp duty compared to £1,867 under the current system.

However, someone buying a property for £251,000 - just above the threshold where stamp duty is three per cent- would pay £5,555 instead of £7,530 under the current system.

"Our proposed system would be fairer for the house-buying public, ensuring that those who can pay, do pay," said RICS chief executive Louis Armstrong.

"It would create more movement in the property market, and it would be revenue-neutral, which should appeal to the government."

"The long-term gain for people buying and selling their homes would be well worth any temporary market turbulence. Whilst there would be some who would pay more under our proposal, this is primarily as a result of the inherent flaws of the existing 'slab' system, that unfairly and artificially protects a particular group."

He added that nearly 50 per cent of house transactions would be removed from stamp duty under the proposals, without losing any revenue for the government.

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