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Property taxes must be fair!

Property taxes must be fair! Stamp Duty... and now the spectre of Mansion Tax, the Government needs to get a grip, says Adam Walker.

Adam Walker

stamp_duty_land_taxI’m writing this article as the Scottish Parliament is about to announce radical changes to Stamp Duty which will come into effect from 1st April 2015.

What is proposed is a progressive system rather than the crude system that operates now under which an increase of just £1 in the sale price can trigger an increase in the amount of Stamp Duty due of up to £40,000. I really hope that the Scottish review will cause the UK Parliament to look again at this grossly unfair tax.

The current system is completely illogical and perverse and the consequence is that virtually no sales are agreed at prices that slightly exceed the break points of £125,000, £250,000, £500,000, £1 million and £2 million. Why should a buyer of a property at £250,001 pay £5,000 more tax than someone who buys the identical house next door for £250,000?

A millionaire in a 10-bed mansion in northern England will pay nowt!

The unfairness of the tax causes enormous resentment and distorts the housing market because people will inevitably reduce their offer to the nearest tax threshold.

In years gone by, buyers and sellers could find ways around the problem by selling the fixtures and fittings at inflated prices or by the purchaser agreeing to pay the estate agency fees. At the top of the market, buyers frequently bought their properties through limited companies in order to avoid paying Stamp Duty at all.

However, in recent years, HMRC has clamped down on such practices to such an extent that most solicitors are now reluctant to sanction the payment of even modest and legitimate sums for fixtures and fittings that are included in a sale.

The solution

The solution is blindingly obvious. Stamp Duty should be charged only on the balance of the purchase price above each threshold at a rate that makes the changes fiscally neutral. It would work in exactly the same way as income tax so that wealthier buyers pay a higher rate of tax but a progressive system would end the injustices of the current one.

A more radical idea still would be to shift the burden of paying Stamp Duty from the buyer to the seller. Many buyers, particularly first time buyers, really struggle to raise the money necessary to pay for their deposit, legal fees, survey fees and the other costs associated with buying a home. The burden of paying Stamp Duty sits heavily on them.

Many sellers, on the other hand, have made large profits on their properties and are far better able to afford to pay Stamp Duty from the proceeds of their sale.

We must accept that Stamp Duty is here to stay. It raised £6.1 billion of revenue for the Government in the year 2013-2014. However, it has often been said that the objective of a tax system should be to “pluck the goose with the minimum amount of hissing”. A progressive system would go a long way towards achieving this.

Mansion tax

The same sentiment also applies to the introduction of the much debated mansion tax. The current proposals have been poorly thought through and would be both unfair and unworkable.

The opportunities for savvy homeowners to avoid the mansion tax would be almost endless. For example, a large property could be split up into smaller flats or a ten or twenty-year lease could be created to reduce the value of an expensive flat to beneath the threshold.

The wider impact on the economy could also be huge. For example, owners of properties near the threshold would be discouraged from building extensions or carrying out improvements to their property.

The loss of tax on the profits made by builders, architects and kitchen companies could easily exceed any revenue earned from the mansion tax.

The burden of paying a mansion tax would also fall heavily on people who do not have enough income to pay it. An old lady who has lived in her modest one bedroom flat in Knightsbridge for fifty years would be liable to pay it from her pension whilst a multi-millionaire living in a ten bedroom mansion in the north of England would pay nothing.


A fairer solution would be a revaluation of all properties for council tax purposes with some extra bands created for the most expensive properties and exemptions for people on low incomes but that would be too politically unpopular with too many voters so the most likely outcome is that we will just continue to muddle through with the existing system.

What we need more than anything, however, is some certainty. The merest mention of the mansion tax or changes to the Stamp Duty rules give potential buyers an excuse to sit on the fence. At a time when the housing market is beginning to run out of steam, this could be hugely damaging.

Adam Walker is a management consultant and business sales broker who has worked in the property sector for more than 25 years

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