Stamp Duty Land Tax Prevents 23% From Buying Home

23% can't get on property ladder due to Stamp Duty Land Tax
According to a survey commissioned by Butterfield Mortgages, almost a quarter of participants stated, that the Stamp Duty Land Tax (SDLT) is the reason, why they can’t get onto the property ladder.

The survey questioned 1,125 homeowners and homebuyers in England and Northern Ireland about the current Stamp Duty system. And over half of them, 58%, think that this outdated system has to be overhauled.

And given that it seems to prevent so many first-time buyers, almost a quarter of the surveyed, from buying their first property, the call for reform seems more than justified.

What Is Stamp Duty Land Tax?

SDLT is a tax that you have to pay when you want to buy a new home. This system is only applicable to homebuyers in England and Northern Ireland. Wales and Scotland have a different tax system for property purchases.

You have to pay Stamp Duty Land Tax, when you buy a freehold property, new or existing leasehold. The tax also applies if you buy through a shared ownership scheme or for a transfer of land or property for payment.

How much you pay depends on the purchase amount. The higher the property price, the higher the stamp duty you have to pay. The SDTL rates are as follows:

  • Property prices up to £125,000 – no SDTL has to be paid
  • For the next £125,000 (property prices from£125,001 to £250,000) – 2%
  • For the next £675,000 (property prices between £250,001 to £925,000) – 5%
  • For the next £575,000 (property prices between £925,001 to £1.5 Million) – 10%
  • For the remaining amount (property prices over £1.5 Million) – 12%

First time buyers are able to claim a discount on these rates, which means they won’t have to pay the tax for properties of up to £300,000. And on the portion between £300,000 and £500,000, they only pay 5%.

For a second home, an additional 3% in Stamp Duty Land Tax is applicable. However, if the first home is sold within 36 months of the second house being purchased, a refund for the surcharge can be claimed.

Foreign investors have to pay a 2% SDLT surcharge when buying properties in the UK.

What Homeowners And Homebuyers Want To See

67% of the people who answered the survey have said they want the government to introduce a fairer property tax system than the current Stamp Duty Land Tax. Three in five respondents, or 62%, also stated that they would like to see the inheritance tax for properties being scrapped. The main reason being, that the Stamp Duty has already been paid on these properties.

The stamp duty holiday has placed property taxation firmly in the limelight, and our timely research shows there is significant demand among homeowners across England and NI to see a major overhaul of the tax.

Alpa Bhakta, Chief Executive at Butterfield Mortgages

Majority Want To See Second Homeowners And Foreign Investors Paying Higher Rates

70% want the surcharge for buyers from overseas to be increased to over the current 2%. Likewise, 66% want the higher rate for second homes to be increased further.

The 2% surcharge for foreign buyers has been introduced to make the property market fairer for Londoners. As they were often priced out by investors from overseas. Since it’s introduction on 1 April 2021, HM treasury has made £86 million from 8,500 completed transactions.

Clearly in its first full year in force there remains interest in property from overseas buyers even despite the global pandemic and the restrictions on travel. 

Karen Noye, Mortgage Expert at wealth management company Quilter

It is, however, unlikely that the government will increase this surcharge, as foreign investors play a major part in driving property investments in the UK. A higher tax could lead to putting off these overseas buyers, which would not only harm the health of the property market, but it would also reduce HMRC’s income through the Stamp Duty Land Tax.

Environmental Considerations Also Called For

The survey also showed that 36% of the people surveyed want environmental considerations to be made part of the Stamp Duty Land Tax system. The more energy efficient a property is, the lower the tax rates should be. This has also been called for by the Energy Efficiency Infrastructure Group (EEIG) in a letter to the Chancellor, Rishi Sunak.

Read our article about the EEIG’s demands to the Chancellor.

There have also been calls for the introduction of a Proportional Property Tax (PPT) to replace the Stamp Duty Land Tax. The Fairer Share campaign wants to see council tax and stamp duty scrapped in favour of a PPT.

The campaign proposes a simple flat rate of 0.48% on the value of a property. This would replace not only the stamp duty, but also council tax and the bedroom tax.

It is clear that the current Stamp Duty Land Tax is outdated and no longer fit for purpose. So it will be interesting to see what, if anything, the government will do to overhaul it and make it fairer.

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