According to the ‘Office for National Statistics’, house prices have increased by nearly 12% since last July last year putting the average UK home at a price of £272,000. With prices at new highs, homebuyers of average wealth are becoming concerned over costs. The recent surge in property prices has pushed families into a tax bracket previously intended for the rich.
Stamp Duty Land Tax (SDLT) is a cost incurred when purchasing a property over a certain price. Given that the current Stamp Duty rate for houses between £250,000 and £500,000 is at 3%, those looking to purchase an average family home will be paying 2% extra in tax, compared to a year ago. As a result, middle income families will now face a tax bill of thousands of pounds. Homes in the capital saw an even steeper increase with the average home now costing £514,000, meaning properties in the price range of £500,000 to £1,000,000 have a SDLT rate of 4%. Buyers in London will have to pay an extra £20,560 on top of their newly acquired property.
Stamp Duty is not the only tax put in place which is now affecting your average income family. Inheritance tax (IHT), originally designed to tax the rich, has become the norm for average households in affluent areas. Inheritance tax is due when the properties of a recently deceased owner total £325,000 or more. The current rate of Inheritance Tax is 40% on anything above the threshold. As house prices increase, more houses fall in this bracket putting rightful inheritors at risk of losing 40% of the equity.
Conservative MPs state that stamp duty tax needs to be reformed, calling to exclude any properties under the price of £500,000 from the tax. Others are also calling to abolish the so called ‘cliff edges’ created by the stamp duty tax, meaning small price changes do not move the property into a higher bracket forcing the buyer to pay considerably more. Stamp duty thresholds need to be increased based on the current average house price. For example, prices increased by an average of 11.7% in the year to July, therefore thresholds for stamp duty should increase accordingly to keep in line with the cost of an average UK home.
Further tax critics advise a change to the inheritance tax also needs to be implemented suggesting that the current system punishes average homeowners who have seen a recent increase in the price of their home. Stephen Herring, head of taxation at the Institute of Directors has said that ‘The nearly-affluent – the families in three or four bedrooms who live in affluent areas – should be taken out of inheritance tax so that they can focus on the genuinely wealthy.’
The current system for both taxes is putting average home owners legible for costs intended for the rich. Providing the current taxation system is amended in line with average property prices, a family of average wealth can purchase property they can finally afford without an unnecessary tax bill.