The Chancellor Alastair Darling has announced that the Government is set to scrap stamp duty for homes below £250,000. He also announced that to pay for this, stamp duty on residential property sales over £1m will to increase to 5% from April next year.
Inheritance tax threshold will be frozen for a further four years to help pay for the cost of care for older people.
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Simon Rubinsohn, RICS chief economist commented: ‘Measures to help boost the housing market are welcome and will benefit a significant number of buyers, removing 50% of transactions from the stamp duty system. Based on our assumptions about activity, RICS estimates that raising the initial stamp duty threshold will cost the Government around £750 million.
‘Recent surveys of RICS members have suggested that the number of transactions should increase through a cut in stamp duty at the lower end of the house price range. In particular, this change to stamp duty could help transactions rise above 1 million for the first time since 2007, although this is still well below the 1.7 million transactions that were taking place at the height of the market. Any impact on the market will be limited by the ongoing lack of housing supply and restricted mortgage lending.
Lucian Cookfrom Savills said this change only really matters if it comes into effect after the General Election: ‘Whether or not this increase would be maintained in the event of a change in government is key. If the 5% rate becomes a permanent fixture, then the softening of prime market values that we had forecast may not materialise as buyers bring forward their purchase to the 2010/11 tax year, and as a result price growth in the following years could be suppressed.
‘In reality, an extra 1% on the purchase price is not significant compared to the recent price gains in the prime markets. However, it is the effect on sentiment that could distort the market.
‘If, ultimately, this increase is introduced the proposed additional 1% on properties over £1m will be disproportionately felt in the high value areas of London and the South East where £1m sales are the most common, and where the increased tax and diminished bonus prospects are being most keenly felt.’
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