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First time buyers will benefit from stamp duty cuts even if house prices rise, says IFS




First time buyers will benefit from the Government’s decision to abolish stamp duty even if house prices rise, the Institute for Fiscal Studies has said. 

On Wednesday Phillip Hammond used his Budget to hand first-time buyers a stamp duty cut with those purchasing homes worth up to £300,000 now fully exempt. Those buying properties worth between £300,000 and £500,000 will receive a partial discount.

Last night critics warned that the policy would end up making home ownership more difficult for young people after the Office for Budget Responsibility said it would cause house prices to rise by 0.3 per cent. But yesterday Robert Joyce, director at the IFS, said the stamp duty cut would make owning a home more attainable for the younger generation. He said: “Housing is an asset. If it’s more expensive to buy, it’s also more valuable to hold it and more lucrative to sell it. “There will be some housing not otherwise in reach which will become in reach because larger deposits mean people can secure larger deposit.”

And separate analysis from investment firm AJ Bell showed that first time buyers can now use a combination of the new stamp duty relief and the Lifetime ISA to pay for 10 per cent of their house purchase. However there are fresh concerns that the £500,000 limit, above which first time buyers must pay full stamp duty, will distort the housing market. It could create a "bunching" effect for up to 30,000 sellers a year, the Office for Budget Responsibility warned.  This is because first-time purchases of homes just above the limit will result in a 50 per cent tax hike for buyers of homes even £1 above the limit.  Under the new rules stamp duty of £10,000 is owed on the purchase of a £500,000 property by a first-time buyer. This compares to £15,000 for a £500,001 property. 

The OBR report said: "This will reduce receipts as first time buyer transactions bunch below the threshold. Second, it is likely that some first time buyer purchases will displace purchasers who would have paid more stamp duty on the equivalent purchase."

Micheal Bruce, CEO at online estate agent PurpleBricks, said: "Overall the stamp duty cut is a positive move but the upper limit will make it very difficult for first time buyers to buy homes worth just over £500,000 as they will have so much more tax to pay. 

"Some sellers of homes valued at £510,00, say, may decide to reduce to £499,000 so they appeal to first time buyers. Others may sell at £499,000 and then offer some fixtures and fittings inside the home for the remainder of the value to get around the problem. However the value of these items must be genuine otherwise such a move would constitute tax evasion, which is illegal. People doing this would need to get the right advice."

Nationwide analysis of Land Registry data showed there were 29,123 sales of homes valued at between £500,000 and £600,000 in the year to August 2017 in England.

The changes, which took effect at midnight on Wednesday, shave £1,739 off the stamp duty bill of an average £211,980 first-time buyer home.  First time buyers purchasing a property worth £300,000 will save £5,000. For homes worth up to £500,000, first-time buyers will now not pay stamp duty the first £300,000. On a £500,000 property the bill falls from £15,000 to £10,000.

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