UK to cut unpopular property tax

LONDON: British Finance Minister George Osborne on Wednesday said he will cut a tax on nearly all property purchases, removing a long-standing grievance of homebuyers five months before an election.

Presenting his half-yearly update on the country’s finances, Osborne said the stamp duty tax would be lowered for the majority of homebuyers, while those buying houses at the top end of the market would have to pay more.

The increase for the most wealthy could help neutralise the challenge from the opposition Labour party, currently in opinion polls just leading the Conservatives, who have promised to introduce a levy, dubbed a “mansion tax”, on properties worth more than £2 million (RM10.69 million).

With house prices rising by nearly 10% in the past year, and twice that in London, housing has become a key battleground in the election due next May with many homebuyers being pushed into higher tax bands.

Stamp duty was previously levied according to the total value of a home or land at a rate that increased in stages, resulting in big jumps in the tax paid when a property moved over each threshold.

Under the new plans, the tax rate would be graduated and apply only to the part of the property price that falls within that band. The rates of tax would also change.

The tax will start at 2% on the portion of a property from £125,000 to £250,000, 5% from £250,001 to £925,000, then 10% up to £1.5 million, and 12% above that level.

The 12% rate compares to the previous top level of 7% for homes over £2 million, meaning that buyers of the most expensive properties in Britain, those costing over £937,000, will now pay more.

The Office for Budget Responsibility said the new rules would result in a drop of £400 million in stamp duty revenue this tax year, and £800 million next year.

The average property asking price in Britain was below £250,000 at the start of the year, according to property website Rightmove, rising to just under £270,000 in November.

Share prices in several house builders edged higher on the news while shares in London-focused estate agents Foxtons and house builder Berkeley fell. — Reuters

This article first appeared in The Edge Financial Daily, on December 5, 2014.