The annual attack on the stamp duty land tax and inheritance tax was launched today, with both the Halifax and John Charcol calling for the Chancellor to reform both ahead of his Pre-Budget report tomorrow.
The Halifax has published research today claiming revenues from both stamp duty and IHT have soared because of the government’s failure to reform the thresholds of either to reflect increases in house prices.
The lender says the combined revenue raised from IHT and higher rates of stamp duty on residential property reached a record £6.7bn in the last financial year.
In an effort to illustrate the Chancellor’s continuing reliance on a booming housing market, Halifax says the amount of stamp duty revenue raised from sales of properties valued at more than £250,000 has risen by 175% from £1.2bn in 2000/01 to £3.4bn in 2005/06.
And it says 80% of the rise in the total residential stamp duty tax take over the past five years has been due to an increase in the amount raised at the higher 3-4% rates.
IHT revenue stood at a record £2.1bn in the first seven months of this financial year, according to the lender, up £175m (9%) from the same period last year.
And the amount of IHT revenue collected so far this financial year is higher than total the IHT revenue collected in 1999/00 (£2bn). Last financial year (2005/06) the government collected £3.3bn in inheritance tax revenue and projects £3.6bn in revenue in 2006/07.
The lender estimates the number of properties in the UK valued at more than the 2006/07 IHT threshold of £285,000 now stands at 1.5m, or 8% of all owner-occupied properties. But it says this will nearly triple to 4.2m properties by 2020 if the threshold is only increased in line with retail price inflation.
Halifax is calling on the government to reform IHT and raise the threshold to £430,000 to allow for house price inflation over the past 10 years and to make a commitment to link the threshold to house price inflation in the future. It estimates this change would cost the Exchequer approximately £1bn per annum in lost revenue.
The lender adds if the higher stamp duty thresholds had been increased in line with house price inflation since July 1997 (when the £250,000 and £500,000 stamp duty thresholds were introduced), the £250,000 threshold would now stand at £650,000 whilst the £500,000 would be £1.3m. It says the government should increase the higher thresholds in line with the increase in house prices since 1997 and commit to index link all the stamp duty thresholds to house price inflation in the future.
Martin Ellis, chief economist at Halifax, says: “We call on the government to raise the higher stamp duty thresholds and the inheritance tax threshold in line with the increase in house prices over the past decade. We believe the government also should commit to index link all property related tax thresholds to house price inflation in the future."
Meanwhile Ray Boulger, senior technical manager, John Charcol, says: “The nominal £5,000 increase in the initial stamp duty threshold level seen in this year’s Budget simply served to disadvantage first time buyers as houses that were previously sold at £120,000 to avoid stamp duty have been sold for prices between £122,000 and £125,000. While it is unrealistic to think that stamp duty land tax would be abolished completely the current system is both hugely unfair and significantly distorts the market around all the threshold levels.
“One obvious way to reform the system would be to mirror the way income tax works so that the higher percentage rates of tax are only payable on the amounts over certain thresholds. This need not result in a reduction of the total tax raised providing the rates charged between each band were increased.”
Boulger says there is a suggestion the Pre-Budget report will see the Chancellor announce a proposal to link stamp duty land tax to the energy efficiency of a property in response to the Conservative party repositioning itself on the issue of the environment under David Cameron.
But he adds: “Energy efficiency reports won't effectively be mandatory for some sales agreed up to 1/11/07, and hence for some completions until 2008, and even then not on all properties, it is difficult to see how this could be implemented before 6/4/08. If it is introduced its effectiveness will depend primarily on how big a saving is offered.”
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