Calls for stamp duty reform grow as a quarter of first-time buyers pay the tax

The HomeOwners Alliance is calling for an urgent review of stamp duty after its research found that almost a third more first-time buyers are having to pay stamp duty, despite the government's first-time buyer exemption.

Related topics:  Mortgages
Rozi Jones
22nd June 2022
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"Alongside announcing new initiatives to increase homeownership, the government needs to increase the existing first time-buyer relief threshold."

House prices have soared by around £100,000 between 2014 and 2022, but stamp duty bands have not changed, meaning more people are being penalised by the tax.

The Alliance found that 30% more first-time buyers are paying stamp duty than when first-time buyer relief was first introduced five years ago, with 26% of all first-time buyers now paying stamp duty.

Due to rising house prices, almost 1 in 5 more homebuyers (17%) have been pushed into paying higher stamp duty bands. 44% of transactions now fall in bands above £250,000; up from 38% two years ago. An additional 31,500 transactions are now subject to stamp duty, compared to two years ago.

1 in 4 properties (26%) liable for stamp duty are now in bands above £500,000; up from 1 in 6 two years ago (16%).

The research also shows that almost half of the stamp duty is paid by the surcharge levied at investors and those buying second homes. The additional properties stamp duty surcharge now makes up 46% of total receipts.

The HomeOwners Alliance is calling on the government to "be bold and scrap stamp duty entirely for those buying a home to live in".

But falling short of that, it is asking the government to raise the exempt threshold and bands by 100,000, in line with house price growth. These bands have not changed in eight years and the average UK house price has risen approximately £100,000 in that period.

Similarly, first-time buyer relief has not been reviewed since 2017. The average UK house price has risen by approximately 60K or 29% over this period. The HomeOwners Alliance believes that first-time buyer relief should be raised from £300,000 to £350,000 "as a minimum".

The Alliance says the government should also commit to raising thresholds annually in line with house prices, reducing stamp duty costs for those downsizing and those buying an averagely priced home.

Finally, the Alliance wants the government to simplify the stamp duty surcharge, stating that homebuyers buying a home to live in (ie their primary residence) should not have to pay the surcharge. The current system means that those who have inherited a property, who are going through a separation, or who own a rental property have to pay the surcharge on the main property they intend to live in. The change would align stamp duty with capital gains tax, which does not apply gains on primary residences.

Paula Higgins, chief executive of the HomeOwners Alliance, said: “It’s clear that the stamp duty tax needs to be reviewed to ensure it’s facilitating rather than fettering first-time buyers.

“Against a backdrop of soaring house prices, cost of living crisis and increased tax burden, first-time buyers of a home worth £400,000 are being hit with stamp duty bills of £5,000.

“Alongside announcing new initiatives to increase homeownership, the government needs to increase the existing first time-buyer relief threshold. The relief was introduced in 2017 to reduce the upfront costs for first-time buyers. Fast forward five years and there is a real risk first-time buyers become a taxation cash cow, which can’t be right.

“We campaigned for the surcharge and continue to agree with the government that those buying a home to live in should be treated differently to those looking to make money out of property or buying a second home.”

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