Stamp duty proposals could cut housing tax Published: 01/07/2008

The Royal Institution of Chartered Surveyors (Rics) is proposing an overhaul of the stamp duty system that would benefit 99 per cent of property buyers in the UK.

Housing experts at the prestigious international organisation are calling for a fundamental reform of the residential tax, which they argue is no longer fit for purpose.

Headline recommendations include introducing a two tier marginal system akin to income tax, which charges interest on a marginal basis rather than the full amount.

At present, buyers are charged tax at one per cent cent on the full transaction cost once they exceed the £125,000 threshold, at three per cent above £250,000 and four per cent above £500,000.

According to Rics, this so-called slab system distorts the housing market for buyers and sellers of property around each of the stamp duty thresholds, particularly after the rapid price rises of recent years.

Instead, the organisation is proposing that buyers pay no tax on the first £150,000 of a property purchase and a rate of 2.5 per cent on any additional value between £150,000 and £250,000, rather than the full amount.

A rate of five per cent will also apply to the value above £250,000, which should make it cheaper for the majority of purchasers, with the exception of those buying property for in excess of £1 million.

In order to reflect changes in the market, the rates and thresholds would be annually indexed to ease the pressure on first-time buyers and stretched borrowers.

Rics calculates that its new system would cost the government a maximum of 24 per cent of its stamp duty revenue for this year, but would help achieve long-term housing market objectives.

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