Stamp duty ‘dead zones’ have wiped over £260m off the value of residential property, with sellers underpricing their property by around £7,000 to avoid costly jumps in stamp duty and make them more attractive to buyers, data from Zoopla reveal.
Zoopla’s analysis of property sales since April 2012 found the number of sales in the price bands immediately before a stamp duty threshold is significantly higher than the level expected, while the number of sales in the price band immediately after a threshold is significantly lower.
This trend is particularly prevalent at the £250,000 level. Zoopla found the number of sales in the £250,001 to £265,000 price bracket was 60 per cent short of the expected volume because over 25,000 sold properties were under-priced to keep them below the stamp duty threshold.
FTAdviser has previously highlighted the market distortions created by the way stamp duty is calculated on the whole property value in each band, rather than in progressive increments as in the case of income tax.
At the 3 per cent level, one penny over the £250,000 threshold will add £5,000 to the buyer’s stamp duty bill from £2,500 to £7,500.
Sellers whose property values fall in a stamp duty ‘dead-zone’ are reducing prices by £6,990 on average. The total amount cut from property prices to keep properties in a lower stamp duty threshold is more than £260m since April 2012, Zoopla found.
Lawrence Hall, head of communications at Zoopla, said: “The current stamp duty system distorts the market and prevents thousands of sellers from achieving the full value of their property when they come to sell.
“Over the last few years buyer budgets have been squeezed by low savings rates and the high cost of living and this has left buyers less willing to pay the extra stamp duty levied on properties just above stamp duty thresholds.
“An alternative system which removes the distortions is possible without reducing the revenue received via the Stamp Duty Land Tax.
“While a graduated system of land tax will mean some buyers pay slightly more than they would in the current system, overall it will make for a fairer approach to taxing property and enable sellers to realise the full value of their home.”
The Association of Certified and Chartered Accountants has similarly called for a staggered stamp duty system that would operate in the same way as income tax and would reduce the tax bill on a £251,000 house from £7,530 to £2,530.