Thursday, 4 December 2014

Stamp duty tax is back to front



Lots of media coverage today of the Government's rapid change to stamp duty taxes. Overall they are a bit of a giveaway to the vast majority of people, whilst being very heavy on those who have been successful or lucky or both.

The Conservatives implementing Labour Policies really is a sign that my post of Monday demonstrating how little difference there is between the two main parties is a confirmed. There are only slight technical differneces between the parties in reality.

Moreover, the real, fair reform to stamp duty has been missed, as one would expect of the Government.

In the long-term, who makes a profit from houses? It is the people who buy them, because we seem to have endless house price inflation driven by government giveaways like reducing stamp duty taxes when a market bubble is growing.

Also, when you sell your main house, the capital gain is tax free. This means you literally make lots of money in much of the Country. The longer you have owned your house, the better it gets. In the Southeast and London this has frequently meant that due to the tax light nature of house ownership, many people have made more money by buying and living in a house than by working.

So, who struggles? Well it is the young and those trying to get on the ladder. It is very expensive to buy and hard to borrow the large sums needed. A large deposit is needed and plenty of cash for lawyers fees and stamp duty.

Surely then, logic dictates that those who have made the profit and are realising cash should pay the stamp duty tax - this is the seller. They should pay the stamp duty. After all, they have the money and the tax free gain. Sellers' have real equity where most often buyers are actually borrowing money to pay the stamp duty tax.

The fairest meausure to to to mitigate the inter-generational economic warfare that the Government continues to wage (pensions held high by the triple-lock, house prices supported with various measures), is to put the pain of stamp duty onto the sellers and remove it from buyers.

37 comments:

john miller said...

Such is the unassailable logic of this approach that, despite a modicum of intelligence and having bought and sold a number of houses in my long life, I have always - always - had to read the rules to make sure I got it the right way round.

The current rules are completely idiotic.

L fairfax said...

"many people have made more money by buying and living in a house than by working. "
No we haven't. My house has gone up by £150 K since I bought it and this has not benefited me at all. A tax on selling my house would only discourage me from ever moving (as stamp duty currently does). We want more not less transactions to make the market more liquid.
The solution is to move from taxing incomes to taxing land (not the property on the house because then you are discouraging people from improving their house with loft conversion etc). Abolishing stamp duty and replacing it with a land tax would be great for the young as unlike your idea it would encourage down sizing. Sadly the boomers wouldn't like it so it will never happen.

CityUnslicker said...

Land tax is sill L fairfax. It is pure communism - you pay every year. What if your income goes down one year...you have to sell.

I agree we need less transaction taxes; but then we also need to clear the deficit and also deal with a massive housing bubble.

Taxes are a good way to cap bubbles. But this one is badly mis-placed.

You have made a profit on your house, should you sell. When you do why should the buyer pay for your profits?

Umbongo said...

Whoever pays the stamp duty makes no difference to the price of the house. This is Economics 101: the real equilibrium price of houses factors in the stamp duty: whether the person liable to sign the stamp duty cheque is buyer or seller is immaterial. By all means shift the legal liability but don't kid yourself that the stamp duty receipts will be any lower nor that house prices (incuding stamp duty) will reduce.

Sebastian Weetabix said...

Land tax! Leftie bollocks. It just turns freeholders into tenants of the state.

I've a better idea. Abolish stamp duty altogether.

bob said...

I've never understood why we have stamp duty at all on houses on the lower council tax band.

Oh higher tax bands, who cares which side pays the bill, what practical difference does it make?

Dan said...

I tend to agree with Sebastian; the State plunders our pockets far, far too often. A few simple taxes, and the government getting out of most of the businesses in which it has stupidly involved its self, would be far better.

Jer said...

Land tax definitely the way to go, and not leftie bollocks either.

As long as it replaces income tax, and is not (like "mansion tax") additional it's a good thing.

"Tenants of the state" - no change, you can't lock your door against the taxman now.

If your income goes down one year you can't pay the tax, but the state can be more patient than under current schemes, register the tax against the property as a charge and wait, same for widows in oversized properties. Ultimately if you can't afford the property you have, then you have to sell, of course, I don't see a problem with this.

Generally it's hard to evade, easier to administer and incentivises better behaviours than income tax. It also taxes inherited wealth as much as earned wealth, which our current system fails to do, thereby promoting social mobility.

It's not perfect, taking money from people under duress can't be really, but better.

Sandalista said...

Land Tax makes sense if they money raised is used to reduce taxes on the make, build or grow industries i.e. inflate wealth creating industries and tax rentier capitalism.

But cui bono this endless house price manipulation? Ultimately the taxpayer in a number of ways but the most likely benefit is the large number of distressed mortgages still being held by the publicly owned banks.

A touch more house price inflation here and there and they can be released at a profit to the banks and HMG which created the mess in the first place.

L fairfax said...

@"It is pure communism - you pay every year. What if your income goes down one year...you have to sell."
If your income goes down you still need to buy things so that would be an arguement against VAt as well.
No tax is perfect and all taxes could be called communist.
BTW we are all tenants of the state as it is, we have compulsory purchase or should that be banned?

BrianSJ said...

The people who have made most out of the rise in house prices are the banks, surely.

dearieme said...

How extraordinary. You have confused a book-keeping entry with an economic incidence.

Steven_L said...

Would the tax man get first charge on the proceeds of the sale? Over the bank?

Personally I think they'd rather slow transactions and put monetary and psychological barriers in the way of too many people trying to 'cash in' at once.

The 100% mortgage isn't coming back any time soon. I also think there are a lot of people (myself incldued) who don't want to get into debt, and would rather save to retire early somewhere warm and sunny where you don't need a great big house. So less buyers (especially owner-occupier buyers) that during the boom will be a feature that is around to stay.

I mean if the government/central bank wanted to guarantee a deposit sized chunk of every new mortgage, and get 25 year fixed mortgages on the market, they'd just do it surely?

They don't want this, the 'market' is more or less behaving how the government want it to.

Budgie said...

I agree with SW; ownership of land is a bulwark against the state. Land ownership makes clear that the Queen's subject is not the government's subject. There is no reason, other than communist/socialist/statist ideology, for the government to effectively control ownership which imposing a land tax results in. Land makes the citizen equal to the government.

The government needs to be there to look after and enforce the Common Law (internal and external defence), so that transactions between citizens (Queen's subjects) can be carried out fairly, not for modish control-freakery.

The real reason that house prices are too high is, as ever, too much demand for the available supply. The remedy is not more taxes (yes I know taxes makes you statists salivate) but to either build more houses or reduce demand by eliminating immigration, or both.

Sebastian Weetabix said...

The other reason for high house prices is inflated lines of credit. The more money banks create, the higher the house prices will go, ad infinitum - until the bubble bursts and the banks crash, of course, at which point we must apparently save the cunts rather than let them go under.

See how house prices shoot up in any country after mortgages are made readily available. Brazil is a classic example.

Sebastian Weetabix said...

Thank you to L Fairfax for giving an excellent argument against VAT; another shitty tax we never wanted, imposed on us by grasping socialist thieves under the orders of Brussels.

Bill Quango MP said...

Not just Brazil. Ireland and Spain and the USA, which had very stable prices in houses for decades and decades suddenly went bubble-up once the credit was there to buy a property.

Steven_L said...

Houses look reasonably priced as investments to me, giving rental yields of 3% for the best stuff down to 10%+ for the c**p you can only rent to folk who pay with benefits, spray paint the walls and keep pythons.

A 10 year government bond only pays around 3% and blue chip shares seem to be yielding more like 5% - 10% gross depending on what sector they are in. What does a savings account pay these days?

An investor buyer with a 25% deposit can borrow 15 times earnings (assuming a 4.5% annual rental yield), and, if they use a limited company, just post the keys back to the bank and walk away if things go wrong.

So I can see why investors think houses are reasonably priced, especially given the political will to support the market.

As an individual, it's only now I'm approaching 35 I earn anywhere near enough to borrow anywhere near enough to buy anything worth owning. But I'd rather not risk getting into £150k of debt, just so I can spend all my spare cash on carpets, sofas and gas ovens and worry about US interest rate rises, bond crashes, sterling crises, local government spending cuts etc.

L fairfax said...

No one has answered this question
"BTW we are all tenants of the state as it is, we have compulsory purchase or should that be banned?"
If the answer is yes then Greenpeace just need to buy a small piece of strategic land near every airport in the UK and we will never expand any airport ever again.

Mark Wadsworth said...

The economic incidence of the SDLT is always on the seller, regardless of who is legally due to pay it.

For example, in quiet times, "home builders" will advertise that they will "pay the SDLT" or "fit new carpets" or whatever, while maintaining the same headline selling price.

SDLT is a stupid tax, LVT or more council tax bands is a far better way of doing it - they encourage efficient use while SDLT discourages it.

Mark Wadsworth said...

"Land tax ... is pure communism"

No it's not, income tax and other taxes on work and production are much closer to communism.

As you point out yourself, those who continue to earn well are not affected by LVT. That sounds like "free market capitalism" to me.

DtP said...

Massive apologies but i've got my first chrimbo do and will likely be squiffy later so could i pop my QT's down now and by no means blag a point for 1st - as that would be most rude!

0) - Brown affair with neon stuff
1) Stamp duty - sop to the housing bubble
2) Regional Assemblies maybe - they were banging on about Sheffield the other day
3) Yoof unemployment
4) Depressed wages
5) Fracking maybe

Cheers

Budgie said...

Anyone who advocates more tax to prop up the state in the manner to which it has grown accustomed is by definition a statist. And if anyone thinks that a land tax will result in a proportionate reduction in other taxes is a deluded statist.

Budgie said...

".... taxes he is ...."

CityUnslicker said...

Budgie - applause.

I totally dsiagree re the incidence thing. Fine if you are looking purely macro at the overall tax take to the treasury from the housing market. The issue is not that though. My take was inter-generational imbalance where poor youngsters are taking on debt to buy out cash rich oldies - this matters.

Otherwise you may as well agree with Osborne that the stamo duty is revenue neutral - it may be but it whacks the rich. there is a difference between micro and macro.

As for compulsory purchase - that is just a silly argument. Of course if the state wants to build a new major piece of infrastrcuture it needs powers. The state does not have CP willy-nilly - go ask Tottenham re their recalcitrant metal work neightbours, even the council can't get them out!

Anonymous said...

I seem to recall it's been amply demonstrated that house prices and increases thereof are to a large extent a function of income and the cost and availability of credit.

As to an annual Land Tax as far as I can see that's one sure-fired means of compulsory acquisition by the State on terms beneficial to it. For example, as has been suggested by the liebour lot regarding their mansion tax, annual land tax payments could be rolled up and paid out of an estate on death(with interest no doubt). What a prospect! Just imagine the tax man grabbing houses by the score, packaging them up and selling to a friendly investment company. Far fetched?

visc said...

SLDT is rubbish but so is LVT I am not convinced by it, no matter how zealous the advocates. It does give the state far more power.

As to the question should compulsary purchase be abolished - yes from an idealogical point of view if youwish people to not be bullied by the state.

Talking of ownership types and rights, Freehold doesn't give allodial totle so I am inclined to see it not being able to perform as a real bulwark for the citizen against the state. We are allstil essentially slaves.

Graeme said...

CU - so are you saying that if you were selling your house, you would not set the price at your subjective valuation plus the stamp tax?

Ben Jamin' said...

Those who are against a "land tax", could you perhaps answer me this?

I understand why it is morally wrong to be forced to shared your income and capital with others.

But, why is it wrong that we should all share the Earth? Economically, that is.
No one made it by their own efforts. How can you claim exclusive rights to occupy and use it, without compensated those who are excluded?

What we've ended up with is double theft by coercion.

Why penalise someone for what they contribute? People should only pay for what they choose to use and consume should they not?

Isn't this how a civilised society should conduct itself?

Just asking :)

Wildgoose said...

(Local) Land Tax makes sense to me as a replacement for all local taxation. We should reduce Income Tax by the amount handed over to Local Authorities (over 50% of Local Government spending is money handed to them, and thus controlled by, Westminster).

That way Local Government would have control of its own independent revenue stream and have a vested interest in improving its locality and hence tax base.

Poorer areas will still need grants from Central Government but the majority should be free to run their own affairs without Westminster micro-management.

L fairfax said...

@"Of course if the state wants to build a new major piece of infrastrcuture it needs powers."
Communist, you obviously think that we are tenants of the state.

Sebastian Weetabix said...

That comparison is witless. If it is necessary for a compulsory purchase to take place the property owner is compensated, usually quite generously. In other words the STATE BUYS YOUR PROPERTY. A more obvious example of upholding property rights cannot be found. Very different from the serf-lord interaction implied by being a tenant of the state.

bob said...

If I am a first time buyer, I have to stump up the cash for stamp duty (actual cash).

If I am a seller, it comes out of the money I get when I sell the house, I don't have to find the cash.

You might argue the incidence ultimatly falls on the seller, but the buyer still has to find an actual pile of cash.

I havent a clue what the proper economic terms for this are.

Steven_L said...

Yes, but isn't it easier to collect the money from the buyer (who needs the state to register his title) than the seller (who might owe it all to other creditors causing policy complications for one) who might - with the aid of dodgy solicitors etc just do a runner with it?

It's a non-starter, for one, banks will just need a bigger deposit if the state have first charge on the first X% of any property.

Back to the drawing board methinks.

CityUnslicker said...

SL - Loads of countries do it the other way. Payment of taxes has first claim over any other debts - as always.

Bob - yes you are right, but my proposal is still better. No one seems to want to argue my inter-generational issue which suggests I am 100% right..;o)

Graeme - I would like to sell my house for £10 milllion - I will set it at that price, any takers? No thought not. The market sets prices, not the sellers.

Steven_L said...

Since when was that an argument that holds sway on this blog? Loads of countries have property tax systems more like the old domestic rates too.

Some states of the USA and Australia, Singapore, Hong Kong (part of an actual "communist" country where the state spends less % of GDP than pretty much any EU country the UK included), the UK (for commercial property) ...

MW's idea of getting rid of stamp duty, council tax, IHT and insurance premium tax in favour of bringing back domestic rates at around 1% strikes me as a lot more reasonable than calling people "communists" at there mere mention of a bit of reform.

Anonymous said...

The tax (stamp duty) is paid by the purchaser but the impact is entirely on the seller, as the tax reduces the price at which the property will sell.

This has been understood for about 200 years-you might want to google David Ricardo.