The Chancellor of the Exchequer should act now to reform the stamp duty land tax (SDLT) regime for those looking to get a foot on the property ladder as the average property prices continue to rise, says ACCA (the Association of Chartered Certified Accountants).
With average house prices now at £250,000, ACCA has said that the stamp duty risks preventing first-time buyers from owning a home and that properties with a value below £500,000 should be subject to a fairer stamp duty system.
Chas Roy-Chowdhury, ACCA head of taxation, said: 'The cliff edge nature of SDLT has always been very hard to justify, especially at the lower end of the market where young people are taking their first baby steps to get on the housing ladder. With house prices on the rise and lenders loosening the manacles on mortgage lending, this will become an even bigger obstacle for homebuyers.
'While we can understand to some extent that the Government wishes to protect its revenue stream from housing transactions so will not wish to offer any tax reductions at the higher end of house prices we propose that a new system be applied to properties below £500,000. Under that system, the tax would be staged so that 1% tax is paid on the value between £125,000 and £250,000 and 3% on the value between £250,001 and £500,000, in much the same way as income tax.
'On a property worth £500,000 the total stamp duty today, under the current system would be £15,000. Under our proposals it would be £8,750, saving the buyer up to £6,250.'
Personal allowance warning
ACCA has warned that a further rise in the personal tax allowance in the Budget won’t necessarily mean more available income for working families, as more and more people are being caught in 40 per cent income tax bracket.
ACCA has urged the Chancellor of Exchequer to ensure that any rise in the personal allowance is not implemented in isolation and that the whole income tax regime is reviewed to ensure the allowance is not cancelled out by more people being caught by the 40 per cent tax bracket.
Chas Roy-Chowdhury, ACCA head of taxation, said: 'Raising the personal tax allowance looks good on paper but many families across the UK won’t necessarily notice a difference in their take-home pay. The higher tax rate is catching more and more people, which means they are paying more tax. The government’s own figures show that in 27 constituencies, the average taxpayer is now paying at 40%. Any rise in the tax allowance should be matched by raising the threshold of the 40 per cent tax band, or freezing it at the very least.”
Tax changes for the 21st century
ACCA says that the current tax regime is not fit for the modern economy and the Chancellor could use the Budget as an opportunity to bring it into the 21st century.
Chas Roy-Chowdhury added: 'Our tax system is looking outdated. Take business rates for example. They were introduced at a time when enterprises were almost always in a physical building. Today, internet businesses are growing rapidly and yet any business with a property is immediately penalised and put at a disadvantage to online companies. Business sectors that have to use premises – garages, corner shops, manufacturers – are placed at an instant disadvantage.'
ACCA has also called for a more current inheritance tax system. The global accountancy body points out that IHT thresholds have been stagnant over the life of the coalition and should be increased significantly with property prices now picking up. Removing an individual’s home from IHT could be an alternative.
Any plans to introduce additional wealth taxes should be taken off the table until the economy is on a much surer footing, says ACCA. Levies such as the Mansion Tax, which require taxpayers to ‘dry-fund’ a tax charge without having actually received any cash to pay it will only harm a fragile economy in the short-term. Whatever theoretical merits some may claim for such measures, the practical reality is that such a fundamental shift in the basis of taxation shouldn’t be attempted until the economy is far healthier.
Chas Roy-Chowdhury said: 'We recognise that this Chancellor is rightly treading a cautious path out of the recession. We aren’t out of the woods yet, and so tax giveaways might not be the smartest move. However, elements of the tax regime hark back to an era we have left behind a long time ago when only a small number of people earned enough to break into the 40 per cent income tax bracket, business rates were a fairer tax and stamp duty levels did not translate into tens of thousands of pounds. It’s surely time to bring the UK tax system into the 21st century.'