Our hopes and dreams for Philip Hammond

Stamp duty is one of the worst taxes we have, says Merryn Somerset Webb. Philip Hammond should replace it with an inflation-linked capital gains tax on primary homes.

161107-philip-hammond-b

The list of taxes that need reform is a very long one. But there is one tax that has been at the top of the list for well over a decade now: stamp duty.

The government will tell you that it has reformed it: a few years ago it dumped the slab system and changed all the rates. Now when you move up a band you only get charged the higher rate on the value of the house over the threshold as opposed to on the whole lot. This represented progress at the time. But with each forward step we got a backward step. Rates were increased massively at the same time, so that anyone buying a house costing more than £937,000 paid more. And they have gone up since.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

The results are starting to be seen. An article in the FT this week points to the way in which the owners of London houses have taken to "saving on higher stamp duty and house purchase costs by waiting to buy an adjoining property and knocking through." You might think that sounds like a lot of effort. But look at the savings and you will see the point. Own a £4m flat, buy one next door for £4m and make them into one and your stamp duty bill will be £513, 750 (which seems nuts in itself). Sell the first and buy a bigger £8m house and you are on the hook for £873,750.

The Daily Telegraph picks up the story too. High duty rates are "restricting the transactions, preventing older owners from downsizing, adding to house price inflation and distorting the planning process" says Olivia Rudgard in the paper.

Advertisement
Advertisement - Article continues below

At the same time the complexity of the rules around the new 3% additional rate for second-home owners is "causing chaos for buyers sellers and their lawyers". What, for example, to make of the case of Phyllis and Alan Black, who can't sell their house because it comes with a large annexe? The annexe counts as a separate house and so attracts an extra three percentage points of tax.

There are a lot of really dreadful taxes in the UK (see my column on the matter here) but add all this up and stamp duty is close to the worst. It acts as a punitive wealth tax. It stifles labour mobility. It prevents people from trading up and down. And now it has been so fiddled around with it's hard to comply with too.

Our hope (a forlorn one, I know) is that Philip Hammond will have a go at addressing all this in his Autumn Statement. Our dream is that he will replace it with an inflation-linked capital gains tax on primary homes. That would get rid of all the mobility problems (you pay tax on gains rather than on existing wealth) and possibly make a start on bringing down house prices too: if you have to pay capital gains tax on your house in the same way as you do on other assets, you will have less incentive to throw all your cash at your house.

Advertisement

Recommended

Visit/519223/how-can-we-raise-more-money-in-tax
Economy

What are the best ways of raising more money in tax?

Given that whoever wins next week's election will be going on a massive spending spree, we're going to need to raise at least some of that money throu…
5 Dec 2019
Visit/518715/what-are-the-biggest-mistakes-investors-make-when-it-comes-to-tax
Investment strategy

What are the biggest mistakes investors make when it comes to tax?

The tax implications of an investment are something we rarely consider until after the event. That could prove to be an expensive mistake, says Domini…
27 Nov 2019
Visit/516758/beyond-the-brexit-talk-the-british-economy-isnt-doing-too-badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Visit/516603/how-tax-has-shaped-the-course-of-human-history
Economy

How tax has shaped the course of human history

Taxation is as old as civilisation itself. But how much is too much? Dominic Frisby looks at how taxation, war and society have evolved together over …
16 Oct 2019

Most Popular

Visit/investments/property/601110/house-prices-and-covid-19
Property

House prices and Covid-19

The housing market is in deep freeze – what happens when it thaws out?
5 Apr 2020
Visit/economy/global-economy/601114/whos-going-to-pay-for-the-war-on-coronavirus
Global Economy

Who’s going to pay for the war on coronavirus?

Central banks and governments are throwing money at coronavirus to stem the pandemic and prop up their economies. But who's actually footing the bill?…
6 Apr 2020
Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/investments/property/601081/three-things-matter-for-the-uk-housing-market-now-and
Property

Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020