Friday, August 13, 1999 Published at 15:50 GMT 16:50 UK
Business: Your Money
Property market alert
Buying that dream home could cost a lot more next spring
By BBC News Online's Iain Rodger
The cost of moving house is likely to go up significantly early next year, according to tax experts, who believe the chancellor will increase Stamp Duty rates again in the next Budget.
The government has already signalled that Stamp Duty has assumed an increasingly important role in generating revenue, and another increase could very neatly kill two birds with one stone.
On the one hand, it would help to choke off a growing boom in the housing market, which if allowed to run out of control could stoke up inflation. On the other, it is seen as a way of increasing tax revenues without becoming too unpopular.
The government also has the ready excuse of seeking to fulfil its obligation to harmonise taxes with the rest of the European Union, where the average equivalent rate of about 6% is well above the current top rate in the UK.
Most people's experience of Stamp Duty is limited to when they buy a house or flat. As a proportion of the purchase price, the rates are:
Given the fact that the vast majority of properties in the housing boom hot-spots in the south-east of England sell for more than £250,000, and that most of those in less thriving areas fall below that level, it is not difficult to see that Stamp Duty looks an obvious choice for the Chancellor come next March.
The Treasury and the Inland Revenue are, of course, refusing to comment ahead of the Budget, and there is no question that any confirmation now of an imminent rise would exacerbate the housing boom by prompting a rush to beat the deadline.
But tax experts are confident that the writing is on the wall. John Whiting, Tax Adviser at accountants PricewaterhouseCoopers says Stamp Duty is a soft target: "It raises a lot of money for the government and is a very attractive option."
But he said there was a downside too: "If the rates go too high they can cramp the housing market, causing labour mobility problems.
"Also, there is a serious knock-on effect on business."
Stamp Duty on property applies to sales where ownership cannot be transferred by delivery to the buyer. So not only houses but a whole range of business assets are affected, such as fixed plant and machinery, commercial properties, goodwill, patents and copyrights.
This means that any increase significantly adds to the financial burdens on businesses, especially in the hard-pressed manufacturing sector.
Andrew Tailby-Faulkes, Tax Partner with accountants Smith & Williamson, says the increase in the last Budget has already led to a brand new industry springing up to help businesses get round paying the duty.
He says: "Few commercial properties change hands for less than £500,000 so the top rate is levied. This is now resulting in gross avoidance."
The implications have not escaped the notice of the tax authorities. John Whiting says: "The Inland Revenue is concerned that avoidance is getting a bit rampant and perhaps should be stopped."
Then there is also the issue of the Stamp Duty levied on UK share transactions, currently 0.5%.
With the rapid growth of international share dealing online - which is free from the UK duty - the government is being urged to abolish the tax before the London market begins to lose business to cheaper competitors.
As a consequence of all these factors, the Chartered Institute of Taxation is calling for a thorough review of Stamp Duty, which is still governed by an Act of Parliament passed in 1891.
It is also calling for differential rates for business and non-business transactions so that the government can achieve its aims without placing too great a burden on companies.
In the meantime, the logical conclusion is that if you are thinking of buying a house or flat, it would be wise to consider doing so sooner rather than later.
But it would also be wise to be careful about the price you pay in the current rising market because, if prices are dampened down significantly next year, you could even end up being hit by the scourge of the last property boom's aftermath - negative equity.
Your Money Contents