Should we get rid of Stamp Duty and Council Tax?
Get rid of Stamp Duty and Council Tax
The liberal-conservative think tank Bright Blue is proposing that we should get rid of both Stamp Duty and Council Tax, but what it gives with one hand it takes away with the other. Property taxes are here to stay but might be structured differently. The risk is that what is saved in Stamp Duty Tax feeds through to higher house prices as we have seen with the current Stamp Duty Holiday and it could end up costing us more over the longer term.
What is Bright Blue proposing?
The thinkers in the tank at Bright Blue are proposing that we should do away with both Stamp Duty Taxes and replace them with an Annual Proportional Property Tax (APPT) which would encompass both a national and local tax.
What does this the APPT mean?
It means that homebuyers would never again have to find a big chunk of cash upfront when buying a home to pay Stamp Duty at a time when there are many different calls on your hard-earned cash, but the quid pro quo is that your monthly taxes are likely to increase slightly, but on an ongoing basis to cover the Government’s loss of Stamp Duty receipts. However, the tax would still be related to the value of your home. For an indication of the value of your home claim your FREE home valuation report.
How much would the APPT tax be?
Bright Blue estimates that at a national level the tax rate would equate to 0.11% of the value of the property for primary residences and 0.14% for second or additional homes (a 25% surcharge).
Local Authorities would be free to set the level of the local Annual Proportional Property Tax (APPT) which would stay in the local authority with no clawback from central Government.
What would the APPT be in £ or monetary terms?
For the average £250,000 home, the APPT would be £1,550 per year or £130 per month for a primary residence and £1,925 per year or £160 per month for a second home. This is an oversimplification but does, in our view serve as a reasonable guide or starter for 10. We discuss how these figures were derived below splitting the National and Local elements of the Annual Proportional Property Tax (APPT).
The National Tax
The teams at Bright Blue calculated the National Tax to be income neutral, it has been calculated so that overall the income raised is the same as that currently raised by Stamp Duty.
Based on the average UK house price of around £250,000 the APPT would be £275 per year or £23 per month for a primary residence and £350 per year or £29 per month for a second home
The Local Tax
For illustrative purposes, Bright Blue calculated a uniform Local Tax rate (where every Local Authority charges the same rate of tax) that would generate the same amount of revenue as that currently raised from Council Tax. Obviously, this is an over-simplification because different Local Authorities have different budgetary needs and these budgets are not determined by the value of the housing stock located within the local authority. However, simplifications aside the computers calculated a local rate of 0.51% for primary residences and 0.63% for second homes (again a 25% surcharge).
If we crunch the numbers again for the average £250,000 house the local APPT equates to £1,275 per year or £106 per month for primary residences and £1,575 per year or £131 per month for second homes.
Could the APPT lead to higher or lower house prices?
Good question. There is a risk that it could lead to higher house prices as the money you were going to spend on Stamp Duty has now been freed up and can be used to either buy a bigger house or allow you to increase the offer on the home you want to buy. During the current Stamp Duty Holiday, we have seen a multiplier effect – house prices have risen by more than the money saved on Stamp Duty bills. One might therefore end up paying more over the longer term, but then again no one said tax reform was going to be easy and whilst the Annual Proportional Property Tax (APPT) may solve some issues, it might cause new ones.