Home—Blog—Should the seller pay the stamp duty?
Jan 17, 2012, 04:37
Posted byMerryn Somerset Webb
Comments (42)
We seem to talk of little else here than how property should be taxed. Regular readers will know that if it has to be taxed, I favour an inflation-linked capital gains tax on primary homes. But an interesting idea turned up in the Sunday Times this week from John Stevenson, MP for Carlisle.
He reckons that the best way to sort things out would be to shift the burden of stamp duty from the buyer to the seller. This makes sense in all sorts of ways. It would mean that first time buyers would become exempt. “People wanting to get on the property ladder should not be taxed for doing so.”
It would mean that people moving up the ladder would be paying duty on the lower-price house they are selling, not the higher-price one they are buying. And it would mean that the greatest burden fell on those leaving the housing market or downsizing. You might think that this isn’t fair but it is true that those leaving the ladder are generally better able to pay the tax than those joining it.
Stevenson’s scheme also comes with the benefit that it doesn’t change the final amount of tax paid – it could be introduced in a second and work to the benefit of most people in the market while making no change to the finances of the state. I can’t think of any other ideas from an MP that I could say the same about.
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That said, I still don’t think it is as good as a primary property capital gains tax (CGT). Why? First because stamp duty is in general a rotten tax, paid regardless of whether you have made any gains or not. If house prices rise and sellers pay the tax it might in part represent a tax on capital gains, but if they do not, it remains yet another double taxation distortion in the economy.
More importantly, regardless of who pays the tax, it remains a huge barrier to labour mobility in the UK. Stevenson appears to assume that all sellers are upsizing or downsizing. But a large number will be moving sideways – for family reasons or work reasons, they’ll be looking for a similar house somewhere else. Having to pay stamp duty will mean – just as it does when charged to the buyers – that doing so penalises them very heavily indeed.
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(17 January 2012, 05:20PM) Complain about this comment
Never mind the stamp duty; what about paying for the comprehensive survey? Who has ever heard of selling a product, and it is the potential buyer who has to prove its viability?Anyway the whole market is a mess. Over-priced houses with sellers fondly remembering bubble prices from 2006-7 wailing about "derisory" offers. And with BoE and govt desperately trying to rescue the banks, impeding the market, we'll have a zombie-like market outside super-prime central London for years.
(17 January 2012, 05:25PM) Complain about this comment
Oh, and the stamp duty idea won't fly. It would help the young and hit the old, and politicians will never do that no matter how fair it would be. Hence so much of the cuts agenda is hitting the young: scrapping EMA, trebling uni fees, and of course, artificially propping up house prices.The old vote, the young less often. In that way, you could say it's their own fault.
(17 January 2012, 05:52PM) Complain about this comment
Like many other taxes, it doesn't matter who pays, it just drives a wedge between buyer and seller. The major factor in house prices has always been how much buyers can borrow. The banks insist on a deposit (these days) and lend you a certain multiple of income. If first time buyers don't have to keep some of that back to pay stamp duty, they'll just throw it at the asking price et voila, first buyer properties just rise in price enough to enable the seller to pay the stamp duty.Here's a similar connundrum. Does it matter if an employee pays income tax, or the employer pays tax on that income? Let's say a company has a budget of £30,000 to create a job. Does it make a difference who pays the tax?
(17 January 2012, 06:56PM) Complain about this comment
This would sink the Buy To Let empires in 1 fell swoop. Not Going To Happen.
(17 January 2012, 07:20PM) Complain about this comment
Bad idea. This wouldn't affect buyers but it would mean that sellers end up paying more than they do now. Imagine these 3 scenarios in which the seller wants the highest price he can get and the buyer with the top bid can't afford more than £300,000 total:1) No stamp duty. Buyer pays Seller £300,0002) Buyer pays duty of 3%. Buyer pays £300,000, of which HMG gets £8,738, Seller gets £291,262.3) Seller pays duty of 3%. Buyer pays Seller £300,000. Seller pays HMG £9,000, leaving him with £291,000So the buyer is not affected. He pays £300,000 no matter what. But the poor seller gets the smallest cut of the buyer's cash when the seller is liable for the stamp duty.If the Seller is "moving up the ladder" to a £500,000 house, he now has £262 less to spend than he would under the "buyer pays" rules. So he has to get a bigger mortgage. How does that help the housing market, Mr Stevenson?
(17 January 2012, 07:22PM) Complain about this comment
A reasonable idea Merryn,but will not happen because of politicians short term bias. You see, when introduced, it would effectively mean double taxation for those who recently bought but want to move up the ladder .They, having just paid to buy, would now pay again to sell. The only way to get out of this horror would be to abolish it for say 5 or 6 years and reintroduce it at a low rate.You make some very good points in some articles, but in many you betray the naivety of a posh kid mset loose in the real world.
(17 January 2012, 08:13PM) Complain about this comment
I am more concerned by the fact that nobody in the UK housing market knows the difference between a bid and an offer.Is the UK the only country that talks of a "property ladder"? I don't hear it Germany. Seems a bizarre concept to me. I guess it's the result of half a century of cheap money, the "my home is my castle" obsession, and an ignorance to inflation. When will the British realise that their "asset" is actually a poorly constructed, overpriced liability?
(17 January 2012, 08:51PM) Complain about this comment
I agree with Roberto. There is little point in discussing how tax should be raised with a government who appear to have such serious bias against young families and the young in general and are intent on cosseting the old and already established - those who already own and control most of the wealth. The young should at least stay unfettered by property so they can remain mobile enough to move to places where they can better thrive.
(17 January 2012, 10:50PM) Complain about this comment
@ Boris. Surely, under the current model, the 'double taxation' applies anyway. When moving up the ladder, a person will need to pay the stamp duty of the house they are moving in to. Under Merryns model, they would only have to pay the tax for the house they are moving out of, which would be a smaller amount. You probably should think things through a bit before bandying around accusations of posh kid logic….
(17 January 2012, 10:59PM) Complain about this comment
House prices are insanely overvalued. If you take on a mortgage now you put a noose round your neck and pay the extravagant bonuses those fat cats still get and pay for those greedy BTL vampires that are sucking the life out of Britain for the rest of your miserable life. Stamp duty, surveys etc…they are just meant to squeeze who ever ventures into this chaotic mess. No matter what this selfish so called elite government does, it all reverts to common market laws of affordability. The average person with a decent deposit can’t afford to live a decent life; never mind buying a house!
(17 January 2012, 11:58PM) Complain about this comment
What is this obsession you have with taxing people's HOMES? We live in a property owning democracy. It imparts stability and confidence to our society when a large majority of the population have a financial committment to the rule of law.Throughout the 20th century successive governments have understood very well that is unwise to tax home ownership. Their home is the only real asset most people own, and really its value is meaningless, because everyone needs a home. That is until you die, of course, and then the government takes 40%.
(18 January 2012, 02:30AM) Complain about this comment
straight forward, easy to implement and will help the property market. Politically, its perfect, as on face value it seems like a great way to take money from the rich which can be good during these times, though overall I would say this is good for these sellers in the long term, as in fact it will probably end up benefiting people with money in property. After all if this boosts the market, everyone owning property benefits from higher prices.
(18 January 2012, 04:04AM) Complain about this comment
It really makes little difference if you believe houses are bought on a supply and demand based on price. If the price goes down because the seller pays stamp duty then the demand will go up and hence the price then goes up. So nobody wins in the end.
(18 January 2012, 09:27AM) Complain about this comment
MerrynHow can you say you don't like stamp duty because its a barrier to mobility but yet you advocate CGT on primary property which could potentially be a much bigger barrier.
(18 January 2012, 11:04AM) Complain about this comment
I say again, it's nonsense maths and I'm surprised the economically literate Merryn didn't spot it. The prices will adjust so that buyer and seller pay/receive the same net amount. When there was a stamp duty holiday, did the buyers benefit, or did they just bid up the prices now that they had more cash to dedicate to the purchase?If a bank would lend someone maximum £200,000, that someone takes into account how much stamp duty they will have to pay before making an offer. If they don't have to pay stamp duty, they will just bid more in a competitive world. The seller then has more with which to pay the stamp duty. The result is practically identical all through the chain.
(18 January 2012, 11:08AM) Complain about this comment
#9 J Pratt. Good point. I suppose it does. The scenario in my post in fact involves a bit less stamp duty as they indeed pay on the lower price if moving up the ladder. My mistake. No wonder the posh kids rule the world....they are so comfortable with money! The sting is actually in the tail in Merryn's new idea as having paid as a young FTB people will pay again when they sell up ( for many that is when they die or go to a nursing home). It becomes a tax on rich old ladies, which even the ever youthful Merryn will be one day.
(18 January 2012, 11:28AM) Complain about this comment
J PrattUnder Merryns model, they would only have to pay the tax for the house they are moving out of, which would be a smaller amount. --------------Good point. It also surely wrecks the points of Adam Smith fan, as although the seller has a little less money, he does not have to pay the huge stamp duty on the next place. So it all evens out in the end. Am curious about these Adam Smith fans. Are you like the AS Institute a partial fan who only highlights those aspects of the radical Adam Smith that benefits conservative elites - something Smith warned people to be wary of?And do you therefore reject his central findings on labour value, and progressive taxation?
(18 January 2012, 11:43AM) Complain about this comment
Merryn, there is a practical reason for making the buyer pay the stamp duty. Until it it paid, the property will not be registered at the Land Registry as being owned by the buyer and/or mortgaged to the lender. So buyers (and lenders) have an incentive to pay the tax (or to ensure that it is paid) to be able to show they have title to the property. The seller doesn't care if the property is registered to the new owner, so has no interest in paying the tax. Indeed, a dishonest seller could conceivably make use of the fact that the property was still registered in his name.I believe SD is a relatively cheap tax to collect and if so, that's why - the paying party has an incentive to pay.
(18 January 2012, 02:50PM) Complain about this comment
@NevWow - you really buy the idea of a property owning democracy. Countries like Switzerland and Germany have very low home ownership rates and I don't think they have a problem with people not respecting the rule of law.The problem with a 'property owning democracy' is that you have to treat renters as lepers, just because they are born at the wrong time to be able to afford to buy a home. What do we do with the increasing renter population? Young people today have no realistic chance of buying a home. This is a good thing as we need labour mobility in this country. But under a 'property owning democracy', what do you do - take our voting rights away?
(18 January 2012, 02:56PM) Complain about this comment
Merryn, what does your proposal do to get around the fact that stamp duty is only for the 'little people'? Stamp Duty only applies if you change the record at the Land Registry. If the property is registered to an offshore company and that company is sold, nothing changes at the Land Registry and HMRC has no way to monitor changes in shareholdings in offshore companies. On a £1m+ house, SDLT is £50k+, which is much, much more than setting up this arrangement. So you'd be mad to pay stamp duty on anything more than £1m. Apparently 2/3rds of sales over £1m are done this way now. On a £20m place you're looking at saving £1m tax with a few pieces of paper in the BVI.The only solution is an annual tax on the value, like they have in much of the rest of the world. Let's see how many empty Hyde Park One's we have under such a system.
(18 January 2012, 05:40PM) Complain about this comment
Roberto Birquet asked: Are you like the AS Institute a partial fan who only highlights those aspects of the radical Adam Smith that benefits conservative elites - something Smith warned people to be wary of?And do you therefore reject his central findings on labour value, and progressive taxation?Certainly not. The labour theory of value is a sensible way of examining value. And progressive taxation is a sensible way of raising government revenue. Although, as Smith points out, ground rent (aka Land Value Tax) is even better. In fact one of the things that make me a fan are Smith's warnings about corporations and employers associations. His attack on the East India Company is a condemnation of the privatisation of functions which should be state run. Anyone who reads Smith will quickly come to the conclusion that he is not a simple right-winger despite the attempts by those on the Right to hijack his legacy.
(18 January 2012, 05:54PM) Complain about this comment
Why not scrap ALL taxes and replace with a Land Value Tax? No more Income Tax, no more VAT... developers would then be taxed on all the land they have banked, encouraging new development and downsizing of the elderly, ensuring the most efficient use of land... most people would instantly feel better off and the economy would start moving again... at the very least the Govt. should consider replacing Council Tax and Stamp Duty with a Land Value Tax payable by all owners of land.
(18 January 2012, 05:55PM) Complain about this comment
(18 January 2012, 06:03PM) Complain about this comment
Roberto Birquet said: [Quote] J PrattUnder Merryns model, they would only have to pay the tax for the house they are moving out of, which would be a smaller amount. --------------Good point. It also surely wrecks the points of Adam Smith fan, as although the seller has a little less money, he does not have to pay the huge stamp duty on the next place. So it all evens out in the end. [EndQuote]But my point was that the seller always had to pay the stamp duty. Whether the buyer or the seller is legally responsible for the payment, it always comes out of the seller's pocket. The only difference is that when the seller is legally responsible for the payment, HMG gets more, so the seller has less to spend on his next house, whatever its cost. I'd like to demonstrate with an example but I don't think it would fit into Moneyweek's 1000 character limit.
(18 January 2012, 06:58PM) Complain about this comment
Stamp duty is the most easy and cost effective tax to collect. It has a very high cost to yield ratio for HMRC whose Stamps office employ just 37 staff. I prefer a Land tax in terms of fairness and transparency. The best idea I have seen is for the nationalisation of mortgage provision coupled with a "Right to Sell". The latter involving the right for homeowners to transfer all or part of their home to their local authority when falling on hard times and in effect become a partial or temporary council tenant. Avoiding repossesssion and all the social consequences of homelessness.
(18 January 2012, 08:06PM) Complain about this comment
Hmm, yes unfortunately I can't fit an example into the limit. However I have worked one through and suffice it to say that when you have a chain of people buying and selling each other's houses, nobody is any better or worse off except the last person in the chain who is selling but not buying. That person will end up with less cash in their pocket under a "seller pays" regime than under a "buyer pays" regime. and HMG will end up with more. The fact that a person pays stamp duty on the house that they are selling rather than the house that they are buying reduces the sale prices of all houses except the first in the chain but counterintuitively does not affect what the people in the chain end up owing and owning except for the last person who effectively pays all the stamp duty in the chain and so ends up with that much less cash from their sale.
(18 January 2012, 11:45PM) Complain about this comment
Hi Merryn,I suggest you (re-)read chapter 1 of Intermediate Microeconomics by H.R. Varian. Any tax on property is a tax on the owner. Properties are worth what the market will bear. It doesn't matter who nominally pays the tax. The vast majority of people bid for houses all that they can afford and if the buyers didn't have to pay £10k in stamp duty they would just bid £10k for the house. That's one of the most basic principles of economics. Such taxes only affect the readiness of people to enter the market and thus, transaction levels, or the supply/demand in the long term (ie having to save up for the stamp duty as an upfront costs makes buyers put off purchasing and having to pay the tax nominally would deter speculative sellers from selling).
(19 January 2012, 04:08PM) Complain about this comment
@25. Boris MacDonut"Stamp duty is the most easy and cost effective tax to collect."Are you aware that 2/3 of sales over £1m do not pay Stamp Duty? Very easy to avoid. It's only for the 'little people' for whom the accountant's fees are higher than the SDLT bill. A terrible tax.
(19 January 2012, 07:31PM) Complain about this comment
#28 mombers. At it's height Stamp duty yielded £8billion pa to the Excequer. Even now it pulls in £3billion and HMRC need just 37 staff to police it. HMRC's annula report says it has 7,000 staff in local complaince mainly policing the self employed and comapnies. Last year they raised just £6billion from their investigative work.200 times more staff to get twice the money. Stamp duty is a very cost effective tax to collect. Most taxes now seem optional for the rich, Stamp duty is no exception.
(20 January 2012, 11:05AM) Complain about this comment
@Nick - Your theory only applies where everyone who selling and buying have made a profit from the sale. If they haven't, they too need to save up to pay stamp duty. You demonstrate a mindset where there is an assumption someone, at sometime in the future, will always pay more for the same house than you did!
(20 January 2012, 03:17PM) Complain about this comment
23, Greg: Excellent idea.
(20 January 2012, 04:33PM) Complain about this comment
Good idea, which will hopefully kick-start house price inflation again. Remember folk, we NEED inflation, it takes your debt away. The only people who hate inflation are the rich as it takes their savings away.23; Greg - Land Value Tax. Obviously this would simply be passed on as rents. Wouldn't you rather have an elected government set your taxes rather than a private landlord.
(20 January 2012, 06:08PM) Complain about this comment
David Atherton wrote, "Land Value Tax. Obviously this would simply be passed on as rents". That statement falls into the "obvious but wrong" category. Some taxes can be passed on, some taxes can't. LVT is one of the ones that can't. To really understand why, you need to know a bit about price elasticity and supply and demand diagrams. But using commonsense, you can see it too. Just think of this. Once a landlord pays off his mortgage, does he charge less rent to his tenant? After all, his costs have just been reduced. The answer is "No, he doesn't". A landlord charges what tenants are prepared to pay and that has nothing to do with the landlord's costs. There are plenty of BTL landlords who are discovering this unpleasant truth as they find themselves paying more for mortgage and maintenance than they are able to get in rent.
(20 January 2012, 07:51PM) Complain about this comment
@ 32. DavidQuote:'The only people who hate inflation are the rich as it takes their savings away.Most of the rest are too short-sighted to see that it is their inheritances that are being eroded away.
(21 January 2012, 03:42PM) Complain about this comment
Adam Smith Fan, OTOH, Mombers, Greg, glad to see you all here, fighting the good fight!
(21 January 2012, 04:05PM) Complain about this comment
Maybe we should Abolish Stamp Duty to kick start the housing market . Which would kick start the Economy . Think of all the businesses that buyers and sellers use , builders , new kitchens , furniture , the list goes on .
(22 January 2012, 08:15PM) Complain about this comment
Why not split the tax 50:50 between buyer and sellerBetter still, do away with it. It reduces other economic activitythat would generate jobs, slows the rate at which houses are refurbished, reduces labour mobility etc etc.
(22 January 2012, 08:28PM) Complain about this comment
Reading the Sunday Times today I was not surprised to find out that another £100 billion of property was shoved into offshore vehicles jlast year to avoid SD . Westminster and Kensington alone have over 16,000 such proerties in tax haven shelters at an avergae value in excess of £7 million each. However they are spread all over with hundreds in Manchester and even 24 in Torquay. A Land Tax would negate this fiasco and bring a much needed element of fairness to our increasingly untrustworthy nation.
(23 January 2012, 09:12AM) Complain about this comment
"Who has ever heard of selling a product, and it is the potential buyer who has to prove its viability?"All the time - if you were buying a business you would spend time / money to assess if what you were being told were correct, if you were buying a car privately you may pay for an independent mechanic to check it over. BUYER BEWARE.
(23 January 2012, 09:14AM) Complain about this comment
They should just scrap stamp duty on houses - it's a extra disincentive to move or (if anything) it should just be a flat charge - either just a flat percentage or better still a fixed charge (i.e. £250).
(23 January 2012, 09:45AM) Complain about this comment
I favour (in order of preference): scrapping it completely (or at least for now), charging a small fixed 'admin' fee (i.e. £250) or a smaller, fixed percentage but shared 50:50 between buyer and seller.It's a pretty pointless tax - yes it's easy to collect but you pay it regardless of whether you have made a gain or not and it's it hurts people who have to move more often (thus discouraging mobility).
(02 March 2012, 07:33AM) Complain about this comment
hi i am buying a townhouse off the plans somone has already brought the townhouse and is selling it for less then what she payed to i still have to pay stamp duty
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