Following on from yesterday, the second proposed change from the Tories is to stamp duty, the tax paid when a house is bought. Stamp duty is perhaps the worst tax in the UK, for three reasons. First, it affects people trying to put a roof over their heads, which is something the government should be encouraging, not discouraging. Second, it kicks in at just £120,000, which with a bit of hunting might just get me a house that would be too small for me to legally occupy with my family, so I can’t realistically choose not to pay it without forgoing a home. And finally, it’s hideously regressive (I think that’s the right term, the hideous bit is certainly correct). A house costing £249,999 would pay £2,499, while just one pound more would take you into the next bracket, resulting in a bill of £7,500. Until I found this out I couldn’t understand why our house hunting turned up lots of houses up to £250,000, but then there was a gap until around £270,000.

The Conservative plan is basically to remove the first band (£120k-£250k) for first-time buyers. The reasoning, I guess, is to help people get on to the property ladder, which is a big deal over here (the average wage earner in the South can’t afford a mortgage large enough to buy a house). The actual effect is to keep house prices higher than they should be (rather than letting the unaffordability of houses remove buyers, thereby forcing prices down), without dealing with any of the shortcomings of the tax that I mentioned above.

My preference would be to remove all tax up to the national average house price, levy 10% on any value above that up to 5x the national average, and 20% above that. That deals with the issues, shouldn’t lose much revenue, and discourages the growth in McMansions which the country is too small to easily sustain.

The Conservatives have announced a couple of tax ideas in the run-up to the expected general election. First is a rise in the limit for inheritance tax, from the current £300,000 to an even million. Apart from the slightly grandstanding figure (picked not by economic calculation, but because it lets them say that only millionaires will be taxed) it’s a sound policy. I think inheritance tax has a role to play in preventing the establishment and support of a new landed gentry, but that means it should only affect amounts that would lead to such a thing; for that reason I would support an even higher limit, but what’s a million between friends?

As an aside, it’s inheritance tax, not death tax. If I died tomorrow (don’t all rush to cry “please no!”) I wouldn’t be taxed, and neither would my family. Only if there is a significant inheritance would a tax be levied, hence inheritance tax.

Tomorrow: Stamp Duty.