One in five home buyers now over the higher stamp duty threshold

Rising property prices have led to about one fifth of consumers being forced to pay stamp duty at a higher-than-standard rate, new figures reveal.

According to a study by Halifax, some 19 per cent of homes in England and Wales are valued at more than £250,000, which has seen homeowners occur stamp duty costs when purchasing property rise from one to three per cent, a figure which may lead to an increase in the homeowner loan they wish to take out.

Halifax believes this is the first postcode level analysis of stamp duty rates paid across England and Wales. Halifax has examined house prices and home sales in 2,132 postcode districts across England and Wales over the past five years with reference to the stamp duty thresholds. Halifax believes the current thresholds at which stamp duty is levied should be adjusted to reflect the significant rate of house price inflation seen over the past decade.

Halifax calculates that over the past five years there has been a 281% rise in the number of home sales in England and Wales above the £250,000 threshold at which a 3% rate of stamp duty is levied.  The number of residential property sales attracting at least 3% stamp duty has increased from 73,403 in 2001 to 279,408 in 2006.

Home buyers in these transactions were faced with a stamp duty bill of at least £7,500. In 2006, 19% of home buyers paid at least 3% stamp duty compared with 6% in 2001.

89% of the rise in stamp duty revenue over past five years driven by sales above £250,000
Total stamp duty revenue from residential property sales was £4.6bn in 2005/06, up 114% from the £2.1bn raised in 2000/01. 89% of the rise in the residential stamp duty take over the five years was due to an increase in the amount raised at the higher stamp duty bands (3% on sales between £250,000 and £500,000 and 4% above £500,000). Stamp duty revenue raised from sales of properties valued at more than £250,000 rose by 175% from £1.2bn in 2000/01 to £3.4bn in 2005/06. The higher stamp duty bands accounted for 74% of total residential stamp duty revenue in 2005/06 compared with 58% in 2000/01.

3.5 million properties valued above 3% stamp duty threshold
Halifax estimates that 3.5 million (19%) English and Welsh properties are now valued above the £250,000 stamp duty threshold; and 600,000 (3%) are valued above the £500,000 threshold. London and the South East account for 64% of homes valued above £250,000 and 77% of homes valued above the £500,000 threshold.

Average stamp duty bill at least triples in 374 postcode districts over past five years
The stamp duty payable on the average house sale has at least tripled in 18% (374) of postcode districts over the past five years, reflecting a shift in the average stamp duty rate from 1% to 3% in these districts. YO62 in York has seen the biggest increase with the average bill up 601% from £1,087 in 2001 to £7,620 in 2006.  WN8 (585%) near Pemberton in the North West and TR26 (583%) in St Ives in the South West have seen the next biggest rises. (See Table 2)

No stamp duty paid in 30% of home sales in England and Wales
30% of home sales (450,999) in England and Wales attracted no stamp duty in 2006, up marginally from 28% of home sales (331,798) in 2001. This rise in the proportion of sales paying no stamp duty reflects the rise in the initial 1% stamp duty threshold from £60,000 in March 2001 to £125,000 in March 2006.

Higher stamp duty bands unchanged since 1997 despite 175% increase in house prices
The higher stamp duty thresholds - £250,000 and £500,000 – have been unchanged since their introduction in 1997 despite a 175% increase in the average house price over the period. The 1% stamp duty threshold was increased from £60,000 to £120,000 in March 2005 and then rose by a further £5,000 in March 2006. However, even these increases have not kept up with the pace of house price inflation. House prices have increased by 205% since March 1993 (when the 1% threshold was raised to £60,000) compared with a 108% rise in the stamp duty threshold.

Stamp duty thresholds should be indexed for house price inflation
If the higher stamp duty thresholds had been increased in line with house price inflation since July 1997 (when the £250,000 and £500,000 stamp duty thresholds were introduced), the £250,000 threshold would now stand at £680,000 and the £500,000 would be £1,360,000. If the lowest stamp duty threshold, 1% had been increased in line with house price inflation since March 1993, it would now stand at £185,000, compared to its current level of £125,000.

Tim Crawford, Group Economist, at Halifax, said:
"Stamp duty revenue raised from home sales continues to rise rapidly. Bracket creep has been a key factor as a growing percentage of property sales now occur above the higher stamp duty thresholds of £250,000 and £500,000, which have not been changed since their introduction in 1997.  Nearly a quarter of postcode districts in England and Wales now have an average price above the 3% stamp duty threshold of £250,000, compared to only one in 20 districts five years ago."