Despite the reforms to Stamp Duty announced in this week’s Autumn Statement, Labour still intend to press ahead with the so called ‘Mansion Tax’ (or Homes Tax) which will hit hundreds of thousands of family homes nationally.
This week, stamp duty will be cut for 98% of people who pay it - only the highest value residential properties will pay more. This means people buying a home for less than £937,500 will pay less stamp duty.
Under the old rules, people would have paid Stamp Duty Land Tax (SDLT) at a single rate on the entire property price. Now, they will only pay the rate of tax on the part of the property price within each tax band – like income tax.
The measures are major reforms to the tax system and will also help first time buyers through lower up-front costs when buying their first home.
Whilst the changes will mean more expensive properties will attract more SDLT, it removes the current “cliff edges” near the band boundaries, and makes the tax more progressive. This means nationally stamp duty will be cut for 98% of people who pay it, and of people who pay stamp duty in London, 91% will pay less. The average London home costing £510,000 attracted £20,400 in stamp duty under the old system and will now attract £15,500 – a saving of £4,900. Even in Chelsea and Fulham, with some of the highest property values in the country, stamp duty will be reduced for about half of properties, according to estimates from the Treasury.
Commenting on the announcement Greg Hands MP said: “Stamp duty has been described as one of the worst-designed taxes of all time. It has been charged at a single slab rate on the whole purchase price of a home, meaning big jumps in tax when house values tip into a new band. That’s why we’re abolishing the residential slab system altogether. In future each stamp duty rate will only apply to the part of the property price that falls within that band – like income tax.”
In contrast, Labour want to introduce a new annual tax on the family home, on top of the changes to SDLT. Responding to the Autumn Statement, Shadow Chancellor Ed Balls said Labour will support this stamp duty measure, but are still calling for a ‘Mansion Tax’ in addition.
Ed Balls’s Homes Tax would mean an annual levy on properties worth over £2 million, which will be at least £3,000 and could be up to £30,000 or even higher. The tax will have a banded structure, with at least three bands and the lowest band charged at £3,000 per year – however no details were provided for the higher bands. In parts of London such as Chelsea and Fulham £2millon would not just cover mansions, but small family homes and even some flats.
Greg Hands added “We are reducing stamp taxes for 98 per cent of people who pay them and are increasing taxes on the most expensive 2 per cent of homes. But, unlike Labour, we will only ask people to pay that tax when they buy that house and have the money.
"The changes at the top end could have a big impact on the property market in Chelsea & Fulham, and the impact will need to be watched closely.
“Meanwhile, Labour want to hit home owners with a new tax every year. Many of the properties that would be hit by this tax are ordinary family homes and flats. Many were bought years ago for modest prices, and due to house price inflation would now fall into this bracket. As prices continue to rise, more and more homes would be hit. Elderly people would find it impossible to pay amounts of up to £30,000 per annum to live in their family home which in many cases they have been in for 30 years or more.
“I shall continue to fight Labour’s unfair and damaging Homes Tax proposal, which unfortunately it seems Labour are determined to introduce if they are given a chance after the next election. Labour’s Homes Tax will damage the economic recovery in London.”