Stamp out regressive property taxes

Normally the Taxpayers’ Alliance website is only worth a visit to raise a smile and to see what people pretending to be on the taxpayers’ side are up to. I say pretend because of course everyone is a taxpayer: those who do not pay income tax pay more regressive taxes like VAT, but the TPA prefer a more clearcut world where ‘we’ the taxpayers pay for ‘them’ the non-taxpayers through profligate public spending.

What caught my eye was a new TPA campaign called ‘Stamp Out Stamp Duty’ backed up by a research note that contained some interesting data. In 2012-13 over £4 billion stamp duty was collected, of which £3.6 billion came from transactions on properties with values over £250,000 – only a  quarter of sales by number. What is intriguing is the district-level  figures they provide, showing just how enormously the tax take varies from area to area.  In Westminster, 3,630 transactions in 2012-13 produced total stamp duty revenue of £295,706,632.  97% of transactions were at the rate of 3% or higher (ie property value £250,000 or above).

Towards the other end of the scale, the 2,955 transactions in Stoke-on-Trent produced a total tax take of only £892,259. Only 29 transactions – 1% – attracted tax at 3% or more and these still produced 30% of the total tax take.

Obviously everywhere else was in between these two extremes, but the figures confirmed my suspicions about why the Mayor of London wants to get his hands on the London share of stamp duty income and why Westminster City Council has also recently called for a slice of the tax to remain locally. It is clearly the case that the people of Stoke, and other places with lower property values, would lose out on such a deal, but since when did the Mayor bother about that? It is worth noting that Taxpayers’ Alliance policies always seem to benefit the most well-off, in this case those that can afford the most expensive houses. Equally, by removing a significant source of public income, the most likely losers would be those on low incomes who need public services.

Writing in the Guardian, economist Jonathan Portes made the point that it is fair enough to call for an end to stamp duty – a terrible tax, he calls it – but only if it is replaced by a fairer form of property tax. He argues that simple abolition, apart from leaving a hole in the public finances, would also be a hugely regressive move. Because stamp duty is only levied when a property is sold, removal would tend to push up prices (people would pay less tax and could afford more house). The UK would be a fairer and more productive country with a higher tax burden on land and property, not a lower one. As council tax also charges more to poorer people in relation to their property values, it should also be considered for replacement.

Portes calls for a revamped council tax levied on current property values with no cap. This would, he says, achieve the same aims as the ‘Mansion Tax’ and in a simpler way. Identified problems – like the impact on asset-rich but income-poor pensioners – could be dealt with, for example by deferring payments until the property is sold. And he observes that the people who would lose from such a new council tax would be the vested interests that the Taxpayers’ Alliance actually represents.

There are a lot of proposals around at the moment that look to make property and land taxation fairer. I doubt if he TPA will support any of the progressive ones, but this is a big debate that must be had.

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6 Responses to Stamp out regressive property taxes

  1. Pingback: Frontline Friday 9th August 2013: Our favourite frontline blogs this week

  2. Ken Lee says:

    Could the “asset rich – income poor problem” be the Bedroom Tax equivalent forhome ownership sector – after all there will probably be a lot of spare unused bedrooms there – so why hold off on collecting it ?

    • danfilson says:

      I find that once one is “Asset poor, income poor” one’s sympathy for the “Asset rich, income poor” somehow diminishes. People make choices of where they put their money or how they spend it. Sitting on a pile tied up in property is a choice which needs no subsidy.

  3. danfilson says:

    The mansion tax and Stamp Duty both have a virtue that is essential to a tax – they are hard to evade.(though the quantum of tax payable can be cheated) and are leviable on UK non-residents and residents alike. Given the purpose of taxation is, like plucking a goose, to extract the maximum amount of feathers with the minimum of hissing, this is a lot better than taxes where you have to levy a tax bill through the post.

    To my mind the mansion tax, even if the LibDems claim credit for it, is still worth going for. It is a proxy for a wealth tax, although not covering other assets. I would combine bringing it in with a financial transactions tax which catches high volume churning of investments and the beginnings of the removal of the exemption of capital gains tax from owner-occupied residences. I’ve touched on this last before, but my argument is the same, namely that in pursuit of the chimera of a property-owning democracy governments since the war have skewed the market in favour of ownership too far. Home ownership has virtues which speak for themselves, and need no subsidy. Indeed I argue that our poor economic performance since WW2 has not least been due to people preferring to invest in the apparently sure inevitability of property values rising than in private enterprises as working risk capital as they might have in the nineteenth century (I’m talking here of the monied classes, needless to say). Few politicians would be brave enough to bring in such am exemption removal, so it probably won’t happen.

    Stamp Duty on low value purchases (those from well outside the South-East will blanch at £250,000 being described as low value but here in London it barely buys a one-bedroom flat) doesn’t help people get homes to own. But is it the job of government to help people own their own home. If people want to buy, they will save for a lifetime for a deposit and then be mortgage slaves for 25 years or worse. Their choice. Raising the threshold for the 3% rate will, as you say, only raise prices. There is however a case for some form of taper so that you don’t get this £5,000 jump in Stamp Duty when the price goes over £250,000 by just £1,000. It’s not my highest priority in tax reform but perhaps worth doing and at little Treasury cost. Bringing in fresh Council Tax bands above Band H is essential to redress the obvious unfairnesses of Council Tax. That should be enacted in Year 1 of Ed Miliband’s government along with the mansion tax, stamp duty taper, and abolition of CGT exemption for disposals over £10 million (the Tories would rightly call this the thin end of a wedge – inflation alone would annually increase the tax take), and all this could help pay for a huge capital spending programme on home building. You may note too that the increased taxes would help close the revenue deficit – which Tories tell us is a good thing – whereas the capital spending would be, well, capital.

  4. Jacky Peacock says:

    Removing the cap on council tax would have a serious impact on private tenants. Already it is common for renters to take a tenancy on the basis of an ‘inclusive’ rent only to find that a while later the landlord informs the local authority to put the Council Tax account in the tenant’s name without any consultation or even notice to the tenant. Recent case law now allows the Valuation Office to value bedsits with shared amenities as separate dwellings for council tax purposes, even though for all other legislation a house in multiple occupation is regarded as a single dwelling. So low income bedsit tenants are now having to fork out for council tax on top of the rent and the replacement of Council Tax Benefit with local Council Tax Support schemes means that in almost all cases the very poorest have to find about 10% of this tax.

    • danfilson says:

      Isn’t that a breach of contract? If the contact was in writing and said the rent was inclusive of council tax, the landlord is bound by that. I’m no lawyer, so wouldn’t know exactly how you would enforce it, but withholding that part of the rent that goes on council tax (after any 25% applicable discount) would not, I think, put the tenancy in jeopardy. A court should throw out any eviction based on the non-payment of an element of rent relating to council tax where the contract said the rent was inclusive and the landlord reneged on that.

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