Government plans stamp duty hiatus

Tuesday, 5 August 2008 12:00 AM

The government is planning to scrap the stamp duty on home purchases in an attempt to kick-start the stalled property market, according to reports.

A temporary hiatus on the unpopular tax would reduce the financial burden to homebuyers - particularly those entering the market for the first time - and theoretically increase demand within the market.

With prices already falling dramatically - demonstrated by Nationwide reporting the sharpest falls since 1991 - the government has been forced to act, according to reports in the Sun newspaper this morning.

Homebuyers presently pay one per cent stamp duty on homes bought for between £125,001 and £250,000, rising to three per cent between £250,001 and £500,000.

Homes valued over £500,000 are charged at four per cent.

As a result, homebuyers have contributed some £31.5billion in stamp duty to government coffers over the last ten years, according to Treasury figures.

As house prices have continued to rise - with roughly 150 per cent growth recorded across the country over the last decade, stamp duty bands have remained largely unchanged, allowing the government to reap the financial rewards.

This, however, could now be coming to an end.

Speaking to the BBC's Today programme earlier this morning, Mr Darling refused to elaborate, saying: "I am looking at a number of measures and I am not going to be drawn on that today because we have not concluded what exactly we need to do.

"It is helping people that is important. I want to look at a range of options that will help people."

Dramatic action may also be on the agenda to counter a resurgent Conservative party which has been riding high in the polls of late. The party has pledged to abolish stamp duty for first-time buyers should it win the next election.

The Liberal Democrats, however, have criticised the plans.

Vince Cable, the party's shadow chancellor, said: "The government shouldn't be trying to bribe people into buying houses in a falling market.

"With the economy grinding to a halt, we are already likely to see a shortfall in taxation. Suspending stamp duty, even on a temporary basis, will only make this situation worse."

There are also now concerns, however, homebuyers may delay sales until firm government policy is announced - hitting the market further.

With sales already at a record low, according to Bank of England figures, this could see the plan backfiring before it even begins.

The idea has, however, been welcomed by industry insiders.

"This is the first real sign from the Government that it is looking to take practical steps to help spearhead an economic recovery," explained Charles Wasdell, director of Moveme.com.

"If the burden of stamp duty is removed, it will create renewed confidence in the housing market, helping to halt the current downwards spiral."

However, Mr Wasdell also warned the suspension should only apply to those purchasing a primary residence, to prevent second home buyers capitalising on the reduced costs.

The Royal Institution of Chartered Surveyors (Rics) has also suggested, while a short-term hiatus on the tax may be appropriate, the government should recalibrate the tax in the longer-term.

New thresholds for the tax would be annually indexed, reflecting house price growth and inflation, for example, while tax brackets would be altered to insulate first-time buyers from the worst excesses of the tax.

Chris O'Toole

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• uk property news