Budget 2010: Rise in stamp avocation on 1m-plus homes will account first-time buyers

Rebecca O"Connor & , : {}

Buyers of homes that are worth more than 1 million will be hit by a higher rate of stamp duty to fund a temporary scrappage of the tax for first-time buyers, the Chancellor said yesterday.

Alistair Darling said that he would use the extra revenue from a permanent increase in the top rate of stamp duty from 4 to 5 per cent to fund a two-year suspension of the 1 per cent rate on homes bought by first-time buyers that are worth between 125,000 and 250,000.

The change will mean that buyers of 1 million-plus homes will pay at least 10,000 more in tax from next year. Meanwhile, the maximum saving for a first-time buyer completing a purchase from today until March 25, 2012, will be 2,500. On a property worth 1 million the stamp duty bill will rise from 40,000 to 50,000 from April 6, 2011.

An estimated 10,000 to 15,000 buyers of 1 million plus properties will pay the higher tax rate each year, based on Land Registry figures. The relief at the bottom end of the ladder could benefit about 136,000 first-time buyers a year, according to the Council of Mortgage Lenders. However, the concession will apply only to buyers who have never previously owned property and not homemovers buying below the new threshold. If a couple buy together and one partner has bought before they will not be eligible; first-time buy-to-let investors will also be barred.

Related LinksDarling"s plan: at-a-glance guideMultimediaLIVE: deconstruct the Budget with our experts IN FULL: Budget 2010 LIVE: analysis by our economic and money team

The new higher rate was branded another squeeze on bonus earners and cash-rich investors who have dominated the top end of the housing market for the past year and contributed heavily to the 8 per cent increase in the average house price since April last year.

Experts said that the tax rise would lead to a spike in sales of 1 million-plus homes in the next 12 months before the higher rate comes in, but would then choke off activity in this price bracket. The Treasury has forecast that buyers bringing their purchase forward will generate an extra 90 million in stamp duty revenue this year.

The tax will affect disproportionately buyers in London and the South East, where more than 60 per cent of properties worth more than 1 million are concentrated, according to the estate agents Knight Frank.

First-time buyers in London are also less likely to benefit: Halifax figures show that 26 per cent of first-time purchases in Greater London are of properties worth more than 250,000.

Savills, the high-end estate agency, said that homemovers in London responded to the Chancellors speech yesterday by rushing to complete their purchases. Lucian Cook, director of research at Savills, said that the reaction was proof of the potentially damaging impact that the move is likely to have at the top of the market.

The change to rates was viewed as an easy revenue raiser for the Government. The Revenue has calculated that it will raise 390 million from the higher rate between now and 2013, but will lose 520 million over the next two years from the concession for first-time buyers. However, the higher tax rate will remain after the relief has ended.

Nicholas Leeming, the commercial director of Zoopla.co.uk, the property search website, said: Raising stamp duty on 1 million homes is a cynical move by the Government to tax homebuyers who tend not to be their core voters. The burden will fall overwhelmingly on London and the South East.

Stamp duty revenue on the 89,000 residential transactions in London last year was 33 million, compared with 4 million from the 27,000 transactions in the North East, according to figures from HM Revenue Customs.

Housing market experts welcomed the threshold increase for first-time buyers, but said that it would be of limited use for those who are struggling to raise a big enough deposit. Ian Fletcher, the director of policy at the British Property Federation, said: Greater relief from stamp duty will be a confidence boost to the housing market.

It will be of limited value to first-time buyers, however, who typically are having to find a deposit of 33,000. Raising the threshold will effectively knock 18 months off the 18 years it would take the typical 25-year-old to save a 33,000 deposit.

Housebuilders welcomed the move as a boost to the industry, which has struggled to sell homes aimed at first-time buyers for the last two years.

Mark Clare, chief executive of Barratt Developments, said: Eighty-seven per cent of our customers pay 250,000 or less for their homes. We are pleased that many of them will now have the opportunity to save thousands of pounds thanks to this measure, which will help to strengthen the housing market.

Wealth advisers said that the extra tax at the top end of the ladder would not dissuade people from buying 1 million homes, but could encourage them to investigate tax avoidance schemes.