A stamp duty reform could improve the system significantly without necessarily reducing the tax yiel...
A stamp duty reform could improve the system significantly without necessarily reducing the tax yield, according to new research by the Council of Mortgage Lenders.
Stamp duty has been making an increasingly important contribution to Government finances in the last couple of years, with a total of duty levied in 2001/2 amounting to £2.76bn, compared to a total of £830m four years earlier.
However, research made by the CML suggests it is possible to improve the stamp duty system without the Government losing any of its revenue.
One of the main problem with the system is, according to the CML, the way stamp duty is levied on the whole of the purchase price of a property, a so-called 'slab' structure. Instead of just being levied on the amount exceeding the threshold, all properties over the £250,000 threshold are charged the full 3% rate on the total price.
In addition, a similar thing takes place at the £500,000 level, after which 4% duty is levied.
As a solution, instead of using a 'slab' system, duty should be founded on a graduated structure, where only the portion above the relevant threshold is subjected to stamp duty, according to CML research. Several solutions to the problem are given by the CML.
One of the CML's options is to raise the threshold for stamp duty exemption to £115,000, with a 5% duty levied on the value surpassing £115,000, thus maintaining a similar amount of tax yield.
This solution would be advantageous for first-time buyers, people most likely to suffer from the extra tax burden, as it would remove most of them from paying stamp duty, adds the CML.
"We urge the Treasury to reform the current system of stamp duty. As our research shows, it would be quite possible to eliminate the worst market effects of the current system while still maintaining similar levels of revenue for the Government," says Michael Coogan, CML Director General.
"Although we are not specifically proposing which variation should be used, we see a move to some form of graduated structure of stamp duty as the best way forward."
Banks, building societies and other lenders, all members of the CML, carry around 98% of all residential mortgage lending in the UK.
Since first announcement
In process of recovering money
Expected to complete in Q2