First time buyers face £1,500 stamp duty bill

The hated tax has become a major barrier to home ownership in most regions of Britain, and should be slashed or abolished altogether, centre-right think tank Policy Exchange says.

Stamp duty is not charged on sales up to £125,000. It rises to 1 per cent of the value for homes worth £125,000-£250,000, 3 per cent for those at £250,000-£500,000 and 4 per cent above £500,000.

This means a home sold for £400,000 nets the Treasury £12,000, while at £800,000 the bill would be £32,000.

Gordon Brown is expected this week to outline his plans to alleviate the difficulties many young people have in buying a home of their own because of soaring house prices.

But today's report claims that during his time as Chancellor, Mr Brown oversaw a tax regime that added to the difficulties of first time buyers by levying ever-higher levels of stamp duty.

Although the Government has doubled the stamp duty threshold, from £60,000 in 1997 to £125,000 now, this has failed to keep up with house prices.

The increase in stamp duty – from both rising house prices and rising rates – has lead to a huge windfall for the Treasury, with its stamp duty take rising from £675 million in 1997 to £4.6bn in 2006, the report says.

In 1997, it was only in central London, where house prices are highest, that the average first time buyer paid stamp duty.

But last year, the average first time buyer incurred stamp duty in six of the ten English regions.

The Government's tax on the average first time house buyer ranges from £1,298 in the West Midlands to £2,433 in Central London.

In Greater London, the average first time buyer went from paying no stamp duty in 1997, to paying £1,905 now.

Only in East Midlands and in the north of England does the average price paid by first time buyers fall below the stamp duty threshold. Oliver Marc Hartwich, chief economist of Policy Exchange, said: "It is a normal human aspiration to own your own home, but that is now all but impossible for a large number of young people.

"The main reason is soaring house prices, but the Government has made it even more difficult for first time buyers by presiding over a regime of rising stamp duty.

"Hundreds of thousands of first time buyers now have to pay the government to get on the property ladder, whereas they wouldn't have had to pay anything a decade ago.

"The Government cannot directly control house prices, but it does control stamp duty, and it should help first time buyers by cutting it or even abolishing altogether for first time buyers."

Shadow Chancellor George Osborne said: "This startling report reveals the truth behind Gordon Brown's spin.

"He has failed to deliver on housing, and presided over a massive stamp duty tax grab from homebuyers.

"After ten years of keeping young people off the housing ladder, will anyone now believe he has any fresh ideas?"

A Treasury spokesman insisted: "The government has more than doubled the starting threshold rate for stamp duty to £125,000.

"This will mean an extra 310,000 homebuyers in 2007-08 will pay no stamp duty, and close to half of all first-time buyers and and around two fifths of all home buyers will pay no stamp duty in 2007-08."