Friday, 26 March 2010

Budget Miracle

Alistair Darling's budget on Wednesday was extraordinary and deserves great praise. In one remarkable sentence he said that he had 'no further announcements on VAT, on income tax, or National Insurance rates.' I wonder when we will next hear a budget statement as bold as that?

Apart from an increase in duty on cider, the tax change that has attracted the most attention is the revised threshold for stamp duty for first time buyers of property. There is an explanation of all the complexities of the 'Stamp Duty Land Tax', as it is properly called, on the HM Revenue & Customs website. The Conservatives are busy right now looking for the 'devil in the detail' of this budget. I think, though, that the flaw in this particular tax is staring us in the face. Let's go back to how stamp duty is described by HMRC, 'Stamp Duty Land Tax (SDLT) is generally payable on the purchase or transfer of property or land'. Why is it the purchaser who has to pay this tax? Why not the seller? I am not well enough informed to have the answer but I do believe that our economic recovery, rather than the Chancellor's political objectives, would be better served by a switch from purchaser to seller.

Let me explain. There is an obvious difference between property owners when they come to sell and first-time buyers. The owners already have a valuable asset and, in most cases, a part of the value of that property will have come about through house price inflation. First-time buyers, on the other hand, only have their cash deposit. That deposit is the key to entering the property market and, for many people, it is painfully difficult to amass enough savings especially when banks are prudently demanding much larger deposits as security for their mortgages. Stamp Duty comes directly out of those scarce cash resources of the buyer. The same tax payable by the seller rather than the buyer would bring as much revenue in to the Exchequer but would allow our young people more readily to reach the 'first rung'. There might be other unforeseen and unintended consequences of such a change but I think that one possibility would be that banks and building societies would be less inclined to re-possess properties because, in effect, it would be the lender that ended up with the bill for stamp duty.

You can learn about how taxes work, if not why, with a course from the Accounting and Bookkeeping College.

No comments:

Post a comment