UK Stamp Tax Relief Aids 75% of Borrowers in North: CML
As the moratorium closes for the UK’s land stamp tax, the Council of Mortgage Lenders estimates the cost to the government will be just under £500m ($793m) with exempt transactions varying across the country. The UK imposes the land stamp tax on mortgagees and varies depending on the purchase price of the home. In September 2008, the government temporarily raised the 0% tax rate from £125,000 to £175,000 capped the rate for homes purchased for more than £500,000 at 4%. When the threshold was raised, CML estimated that the proportion of homebuyers who would not have to pay would raise from 25% to 50%. But at its peak in Q109, 57% of those buying a home did not have to pay. As home prices crept upward and more consumers bought higher-valued properties, the proportion dropped to 51% in Q309. Areas with lower house prices saw the greatest benefit, according to CML. With the higher threshold in place, 75% of transactions in the North were exempt from the duty. Contrastly, London saw much less benefit. Before the threshold was raised, 2% of transactions were exempt. When it went up, only 17% avoided paying the tax. In the UK, London accounts for 13% of home purchases but only 6% of those exempt the stamp tax. While transactions seemed to be spurred by the moratorium, more borrowers in the UK tightened their housing equity withdrawals (HEW). The Bank of England estimates the total HEW in Q309 at a -£4.9bn, implying that individuals injected £4.9bn into housing equity in the quarter. When the measure to raise the threshold was introduced, the UK Treasury estimated the cost to be £615m. Even after the moratorium was extended to December 2009, the CML estimates it would cost £356m in the first 12 months. Forecating through the end of the year, the CML anticipates a price tag just under £500m. “The CML continues to believe that fundamental reform of stamp duty is necessary,” according to the CML’s report. “While abolition would be the best option, a move to a graduated structure would be an improvement on the current system, even if done on a cost-neutral basis. While the temporary concession was welcome as far as it went, it is disappointing that the government has not sought to implement this desirable reform of an anachronistic tax.” Write to Jon Prior.