Autumn Statement 2014: Stamp Duty Reform Vs Mansion Tax - Who's Got It Right?

George Osborne's Autumn Statement surprise, the slashing of the "single-slab" rate of stamp duty for 98% of home buyers announced today, is a direct challenge to Labour's promise of a mansion tax.

But which would raise the most money, and which is a fairer way?

"The stamp duty payments have become a burden for families, especially when rising house prices have pushed properties into a higher tax bracket," said Osborne. "However, only homes that cost just over £937,000 will see their stamp duty bill go up under this system."

Will the stamp duty reforms have an immediate effect?

The reforms will actually cost the government, rather than pay into Treasury coffers, but will remove the concerns about the mansion tax, voiced by millionaires Myleene Klass and Sol Campbell, who say their concern is for the "cash poor but asset rich" grannies living in £2m properties bought decades ago which have increased in value.

Crucially, there is now no longer a "cliff edge" where property just a pound over a certain value is suddenly subject to a huge tax, stamp duty will be progressive, as shown in the chart below.

Savills analysis of how the stamp duty reforms will now work

Here are the key facts about the stamp duty proposals:

  • The “single-slab” rate of stamp duty is to be leveled more gradually will go, and instead it will be levied at a more gradual rate.
  • It will come into effect at midnight tonight
  • Reforms will actually cost the government £800m in revenue
  • New raters are £0 on the first £125,000
  • Then 2% on the share higher than that sum, up to £250,000
  • Then 5% on the next portion up to £925,000
  • 10% up to £1.5m
  • 12% on anything higher than that
  • It will mean savings for 98% of buyers.
  • The average house price is worth £275,000, and so your average homebuyer would save £4,500
  • But someone buying a £2.1m house sees a hefty £18,750 increase in stamp duty

And here's Labour's proposals for the mansion tax:

  • The threshold for the tax is properties over £2m, though there is some dispute over how they would be valued
  • More than 80% of the homes are in London or the south of England
  • Labour's proposal is for a "progressive tax" - so the biggest homes would pay more
  • Cash-poor owners of £2m homes would have the option of paying out from their estate when they die
  • Labour says the tax would raise £2.5bn a year - and that would be spent on the NHS
  • But critics say the tax would kill income from stamp duty - so would not raise anything like that much in reality
  • It would cost homeowners of the most expensive properties between £3000 and £19,000 a year

The analysis from property experts is near unanimously in favour, perhaps predictably, of stamp duty reform which could invigorate the market, rather than a mansion tax.

One of Britain's top housing experts, former Bank of England economist Kate Barker said: "I think removing the slab on stamp duty is very sensible. I still think it needs to be part of a wider reform of the system."

Barker, who wrote a review of the housing market for the last Labour government, told HuffPost said the step "removes some of the distortions in the market". The current system means houses priced at £260,000 are far less likely to find a buyer, because of the "cliff-edge" threshold of stamp duty over £250,000, leaving a "dead zone" in property prices.

"The difficulty is finding the extra money," she added. "I think the slight downside is because he has had to do it in a way which leaves the money [going into the Treasury] much the same, he has had to put the rates up quite a bit on expensive properties.

Stamp duty reforms will have nowhere near the positive effect on public purse that a mansion tax would. "It doesn't have such a big effect because it is only paid once," Barker, author of "Housing: where's the plan?", said.

Mark Harris, chief executive of mortgage broker SPF Private Clients, told HuffPost the reform would "result in a much fairer regime". He predicted "a flurry of high-end exchanges today to beat the changes".

'While the changes will hit wealthier buyers in the pocket, they have to be fairer than a mansion tax as it's only a hit that is taken once," he added. "It will fundamentally change the way we view our homes: people will think much harder about moving as they are likely to stay put for a number of years. Big moves will be the order of the day rather than several staged moves, particularly for more expensive properties."

"The reforms will negate any scheme abuse where people buy just under a threshold to avoid a big jump in duty," he added. "It will make it easier for first-time buyers and struggling families to get onto the ladder or move up it as they will need to set less money aside for stamp duty and can put more towards their deposit."

Ian Fletcher, director of policy at the British Property foundation told HuffPost he agreed the system had been “in desperate need of reform".

"With high value homes paying far more this will hopefully be the death-knell for any more talk of mansion taxes.”

Osborne's changes will "free up the market," he said, but added that real estate agents and brokers would be struggling to get to grips with changes quick enough. “A little bit more notice would have been helpful," he said, with the changes coming in tonight. as the sector will have to get to grips with the changes by tonight.

Property expert Alistair Bingle, managing director of Bishop's Move, said the announcement had "been a long time coming" and that it "takes away the need for the much maligned Mansion Tax".

"The Stamp Duty thresholds are clearly outdated and don’t reflect current prices – in fact these announcements should have been introduced earlier this year during the Budget. This will have a significantly positive impact on getting the market moving by encouraging people to upsize and increasing the supply of houses for first-time buyers, who are key to stimulating the UK property market.”

The Association of Chartered Certified Accountants Chas Roy Chowdhury also said the policy was preferable to a mansion tax. “We have been asking for this for years – making this tax progressive is important," he said.

"Abolishing the single slab rate is a welcome move to end the significant distortions of this burdensome tax."

Ben Southwood, head of research at the Adam Smith Institute, said it was an end to "one of the worst taxes Britain had."

"According to the best economic research, raising £1 through stamp duty imposes £2-£5 of cost on the economy. This is a tax cut for the squeezed middle that will make a big difference to a lot of people's lives. Politically, it could be a game-changer."

In practice, there is nothing to stop Labour, if elected, to keeping the reforms to stamp duty and imposing a mansion tax on top of today's reforms.

Liberal Democrat Danny Alexander, Chief Secretary to the Treasury, has said his party will press ahead with plans for a mansion tax, on top of these reforms announced today.

"This was delusional stuff," said John McDonnell MP, who chairs the Left Economics Advisory Panel. "Tinkering with stamp duty won’t mask the insecurity, low pay and cuts that ordinary people will continue to experience.

"The Chancellor’s presents were empty boxes, baubles to distract from the real issues people face.”

Other criticised the Chancellor for offering little to the poorest Britons - those who do not own property at all. National Housing Federation chief executive David Orr said he welcomed reform of stamp duty but said it did nothing to help “people trapped paying high rents and stranded on social housing waiting lists."

“This reform will only serve a small percentage of the UK housing market, and doesn’t take into account the increasing number of potential first time buyers who are still unable to get onto the property ladder," said Thomas Villeneuve, chief executive of flatsharing network Weroom told HuffPost. “The government could do more to help fuel growth in a sector [the rental market] that is quickly the most prominent housing option for young Britons, particularly as house prices increase."