An irritated tweet from a reader. He lives in Scotland, had just bought a house and, thanks to Scotland not slashing stamp duty on house purchases in the same way as England had (no tax is payable on purchases up to a price of £500,000 in England vs £250,000 in Scotland), he said, just paid tens of thousands more to get his house than he would have had he been in the UK. I can see how that would be totally maddening.
But here’s the question – had he really paid more than he would have in the rest of the UK? I suspect not. Because, in the end, houses sell for as much as buyers are able to pay – and if they aren’t paying stamp duty, they can pay more in total for the house itself.
It might be buyers that have to actually hand over the stamp duty cash to the state, but it is the seller who tends to be affected by its level. When stamp duty goes up they sell for less; when stamp duty goes down they sell for more. This is not an exact science, but it is not hard to see in the numbers either.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The stamp duty cut came into effect in July. By the second week of August, the papers were reporting exactly what you would have expected: there was, as The Times put it, a “surge in the number of homebuyers, leading to bidding wars and the number of homes being sold over the asking price reaching record levels.”
There was a 45% rise in first-time buyers, and various estate agencies reported inquiries up by 30%-40%. The number of buy to let investors looking rose by 28% and of second home buyers by 22%.
You can see this same kind of dynamic working in the Help to Buy scheme as well. State attempts to subsidise the house purchases of the young simply push up the total amount they are able to pay – and do pay. Most research suggests that Help to Buy purchasers end up paying 5% to 8% more than ordinary buyers of new-build houses, something that has long allowed builders to keep their prices up while maintaining their glorious record of delivering generally shoddy products. Nice.
I think stamp duty is an awful tax. It gums up the housing market, it penalises those without well-off parents (if you need to pay a deposit and your stamp in cash saved out of earned income, you have an awful lot of saving to do); and it should be replaced by CGT on primary homes. But that doesn’t mean removing it will always make the final price of a house cheaper than keeping it.
-
Rents rise at slowest pace for four years – is buy-to-let still worth it?Slowing rental growth and higher property taxes are creating a headache for landlords. Does buy-to-let still offer a good yield?
-
Should you bag a bargain with a half-price investment trust?Twenty-six investment trusts look cheap by historic standards, with some trading at a discount of more than 50%. Are they a bargain or value trap?
-
Stamp duty cuts will stay, but only until 2025. How much will you save?News Hunt: Stamp duty announced in the September mini-Budget will end in 2025, chancellor Hunt has revealed. What does this mean for homebuyers?
-
How to make stamp duty a little less crazyOpinion Stamp duty is a mad tax for all sorts of reasons, says Merryn Somerset Webb. But if anybody should have to pay it, make it the seller.
