The Stamp Duty Rip Off

by Mark Johnston

This is the death blow for first time home owners.  The recent budget published by the UK Government in the last few weeks has dealt a lethal blow to all first time buyers.  When George Osborne said that Britain was open for business it was clear that his budget was going to favor the institution rather than the individual.  The Stamp Duty reforms and by opening up the previously exempt residential property market to the REIT entities, the days of the hopeful first time buyer are numbered.

The REIT or Real Estate Investment Trust is essentially a tax designation which reduces or eliminates corporation’s income taxes for corporate entities investing in real estate. The structure of the REIT was designed to act in a similar way to the mutual fund facility on individual stocks.  The REIT’s are required to dole out 90 per cent their income to their investors; this may very well be taxable.  Just like other corporations, the REIT can be under public or private ownership and can be listed on the stock exchange. 

With the property market now exposed to such a giant, ready and probably willing to vacuum up vast number of properties, whole streets and probably whole rows of terrace houses, what chance will the first time buyer now have?  The changes to the Stamp Duty indicate that there are significant tax breaks for those investing in bulk property investments, what first time buyer / individual has the capital to invest in properties in bulk?  This is good news for the large retail investment companies but not good for the FTB.  I would suspect that mortgage providers are also rubbing their hands together as this now presents them with a great opportunity to develop and roll out more inventive and creative products into the mortgage lending market.  Further alienating individuals and presenting additional, unnecessary and complex information to the FTB. 

Stamp duty is essentially a tax that is placed on legal documents upon transfer.  The original use for the stamp duty was when the government use to place actual stamps or impressions on legal documents to indicate that duty had been paid.  These days, Stamp Duty Land Tax (SDLT) is categorised into thresholds as follows:

Purchase price/lease premium or transfer value   Stamp Duty Land Tax rate  Stamp Duty Land Tax rate for first-time buyers
Up to £125,000 0% 0%
£125,000 – £250,000 1% 0%
£250,000 – £500,000 3% 3%
£500,000 – £1 million 4% 4%

 

Source: HM Treasury

These thresholds have remained virtually unchanged for over 13 years, despite the reported 140 per cent increase in property prices.  By pushing more and more buyers into the top categories the government is covertly increasing its revenue and costing homeowners thousands.  There were a few “loopholes” utilised by buyers to avoid some of these taxes.  Buying a home without any fixtures and fittings may have entered you property just under the radar of a 3 per cent tax.  Buyers could also avoid some tax by only buying a 999 year lease on the property but with the last budget the government has put a stop to all this creative thinking.



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