Stamp duty and inheritance tax: how your house is costing you more

1st August 2014

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Rising house prices are not just pushing up household debt burdens but also the amount of tax due to the exchequer.

New figures from estate agent Savills shows the number of household paying stamp duty of 3% or more has more than doubled in the last decade.

A quarter of homebuyers are now paying stamp duty of 3%, due on homes costing over £250,000, up from just one in 10 in 2003. The increase in the cost of homeownership means the government is collecting nearly record levels of stamp duty; a total of £10.2 billion in the 12 months to June.

The rise in stamp duty collections can be most acutely seen in London and the South East. The average property in the capital is now worth £492,000, according to the Office of National Statistics, compared to £262,000 in the rest of the country. According to Nationwide figures, buyers in the capital contributed 42% of the total stamp duty paid in 2013 although sales accounted for just 15% of total purchases.

This means even modest family homes have been pushed into higher stamp duty brackets, leaving property ownership even further out of reach for some people, and if the Office of Budget Responsibility’s predictions are correct the problem will be exacerbated – it believes house prices will rise 8.5% this year and by 7.8% next year.

Lucian Cook, director of research at Savills, said: ‘Stamp duty bands have not increased in line with house prices, which means we now have an aggressive form of stealth-taxation.

‘The problem is more acute in London and the south east due to greater house price growth.’

He added that the addition of a new 7% stamp duty band in the 2012 Budget on homes costing over £2 million  ‘has substantially increased stamp duty receipts, making prime housing markets something of a cash cow for the Treasury’.

Inheritance tax take

It is not just stamp duty that is being hiked by rising house prices, the amount of inheritance tax (IHT) that is being paid increased to £3.4 billion last year from £3.1 billion in 2012 to reach a six year high.

An estate worth up to £325,000, which is known as the nil rate band, does not incur IHT but anything over this amount will have the 40% tax levied on it.

NFU Mutual personal finance specialist Stephen Berry said the north-south divide was evident in the IHT statistics. The number of people paying IHT in Harrow and the surrounding areas of Ruislip and Uxbridge in north London is roughly the same as those paying the tax in the whole of the north east of England.

Similarly, the number of people paying IHT in Richmond Park in south-west London is more than the whole of Birmingham.

‘Over the past two decades IHT has gone from being an issue for the super-wealth to something that affects millions of people – driven largely by the rise in house prices,’ he said. ‘Although some people aren’t too concerned that the government will take a large chunk from their estate when they die, many would far prefer that as much as possible goes to their children instead. There are many simple steps people can take to make sure their loved ones don’t pay any more tax than they have to – but they shouldn’t wait until it’s too late. Planning should start in your 50s, perhaps even earlier if your health or wealth is a big enough concern.’

 

1 thought on “Stamp duty and inheritance tax: how your house is costing you more”

  1. Noo 2 Economics says:

    “An estate worth up to £325,000, which is known as the nil rate band,
    does not incur IHT but anything over this amount will have the 40% tax
    levied on it.”

    Or indeed £650000 would be the nil rate if the estate is owned by a married couple/civil partnership couple.

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