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The debate of 2012 in the residential sector has been about stamp duty - but then it is the debate of every year, as estate agents claim thresholds at £125,000 and above deter sales, distort asking prices and are simply unfair. So might Scotland be about to show the rest of the UK the way forward?
With its devolved powers, the Edinburgh parliament is scrapping the Stamp Duty Land Tax and replacing it with a new Land and Buildings Transaction Tax from April 2015.
In case we need reminding, the UK currently has this system:
- homes costing up to £125,000 have no stamp duty;
- from £125,001 to £250,000 stamp duty is 1%;
- from £250,001 to £500,000 it is 3%;
- from £500,001 to £1m it is 4%;
- over £1 million to £2 million it is 5%;
- over £2 million in most cases it is 7%;
- over £2 million, purchased by certain persons including corporate bodies, it is 15%.
Within 16 months Scotland will instead have a new tax relating directly to the actual property value - in economic parlance, it will be progressive rather than stepped.
The actual tax level will not be set until 2014 but Holyrood ministers have already hinted that it may be 0% up to £180,000. They have consulted on a possible (but by no means definite) gradual tax thereafter, that runs like this:
For a home costing £190,000 the tax would be £750;
- £200,000 / £1,500
- £250,000 / £5,250
- £300,000 / £9,000
Now at this level, roughly, the tax would be less or the same as UK stamp duty would currently be. But for homes above £300,000 the Scottish tax-take may be more than would be the case under UK stamp duty, although it would be ‘graduated’ rather than stepped, so may lead to fewer price pinch points than currently exist at the stamp duty thresholds.
The Scottish consultation suggested a £400,000 home would have £16,500 tax, a £500,000 home would have £24,000 tax, and a £1m home some £61,500 tax. A £2m home would incur £149,000 tax.
Purists and economic liberals will say any tax distorts a market but real-politik suggests there will always be some duty applied to such large-scale purchases.
So a more sensible question is, given that Scotland and the rest of the UK will still be in the middle of a long-term recovery in 2015, is this more progressive tax better or worse for the housing market?
As we mark the end of 2012, no doubt with a nod to Scottish tradition, that’s a question to ponder. And expect it to be the focus of much debate in 2013, too.
Happy holidays...
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