Our Research Informs the Stamp Duty Debate

September 04, 2014 4:12 PM

Dominic Raab, the Conservative MP for Esher & Walton, quoted TaxPayers’ Alliance research in his piece on the “rapacious impact” of Stamp Duty in the Daily Telegraph today.

Without reform, these trends will continue. The TaxPayers’ Alliance estimates that 80 per cent of home buyers will pay stamp duty by 2017/2018, while almost a third paying the 1 per cent rate in 2012/13 would be dragged into the 3 per cent rate.

Mr. Raab is quoting from our research which demonstrated how Stamp Duty, a tax designed for only the very wealthy, is now hitting ordinary families hard. Stamp Duty stops families moving up the ladder, prevents young people from buying their first home and discourages elder people from downsizing.

Stamp Duty is assessed at 3% on properties between £250,000 and £500,000, and 4% above that, and crucially is assessed on the total value of the property rather than just the extra value above the threshold. It’s profoundly unfair for the Government to apply an extra £7,500 bill on to the top of buying a £250,000 house, a £20,000 bill on to a £500,000 house. Even forgetting the perverse incentives created in the property market by the slab system, it’s not right for the Government to tax income that’s already been taxed through Income Tax, National Insurance, or Capital Gains Tax.

What is particularly pernicious, as Mr. Raab notes, is the way that those thresholds have stayed in the same place for a number of years. As property prices increase, more and more ordinary people are dragged into paying the highest rates. This “fiscal drag” exists elsewhere – most obviously in Inheritance Tax and the 40% Income Tax rate – and it is an increasingly dishonest and stealthy way for the Treasury to rake in extra revenue from hard-working people without the bad headlines that would come with a tax hike.

It’s time to make fundamental reforms to Stamp Duty. In the first instance, the slab system must be abolished and the rates radically increased to reflect changes in the property market. In the second instance, it should be abolished totally. The 2020 Tax Commission, which we worked on with the Institute of Directors, proposed that income should only be taxed once. That was fair when we wrote it, and it’s fair now. Let’s hope politicians, in Mr. Raab’s words, “grasp the nettle” to give ordinary families a break.

Sign up to our campaign to Stamp Out Stamp Duty here.

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