Britain axes property sales tax to boost housing market

Source : Business Times - 2 Sep 2008

The British government moved on Tuesday to bolster the stricken housing market, announcing that homes worth up to 175,000 pounds (US$311,000) would be exempt from property sales tax for the next year.

The move will increase the threshold at which the tax, known in Britain as stamp duty, is paid from 125,000 pounds from Wednesday, which is expected to save buyers up to 1,750 pounds.

The announcement came as the Organisation for Economic Cooperation and Development (OECD) said Britain’s economy, which stalled in the second quarter, would be in recession in the second half of 2008.

Many Britons are struggling to borrow money from banks for mortgages because of the credit squeeze that followed the US sub-prime home loans crisis while Britain is experiencing a prolonged property slump alongside high inflation and interest rates.

Other steps to help first-time buyers and support homeowners at risk of repossession were unveiled on Tuesday and Prime Minister Gordon Brown said they would help Britain ‘come through what is a difficult situation and show that our economy is resilient.

‘Homeowners need to know that we will do everything we can to keep the housing market moving forward,’ he said.

But the opposition Conservative Party quickly condemned the announcement as an attempt to bolster Mr Brown’s plummeting support in the polls.

‘This is a short-term survival plan for the prime minister, not a long-term recovery plan for the economy,’ Conservative finance spokesman George Osborne said.

The tax move is expected to cost about 600 million pounds but Mr Brown’s Downing Street office said the Treasury would not identify where the money would come from until its economic forecasts, known as the pre-Budget report, are unveiled later this year.

‘They’ve had months to prepare and on the day it’s launched, they can’t even tell us how much it costs, or where the money’s coming from,’ Mr Osborne said.

He said a more substantial package was needed, particularly faced with the OECD’s estimation that Britain’s economy would contract by 0.3 per cent in the third quarter and 0.4 per cent in the fourth.

A recession is defined as two consecutive quarters of negative growth.

House prices in Britain fell 1.7 per cent in July on June levels, dropping for the fourth month running, and were down 8.8 per cent from a year earlier, home loan provider Halifax said.

The average British home cost 177,231 pounds in July, Halifax said. The Treasury estimates the tax break will cover half of all house sales in the next year.

Stamp duty is currently charged at a rate of 1 per cent on property worth between 125,000 and 250,000 pounds, 3 per cent between 250,000 and 500,000 pounds, and 4 per cent above half a million. It netted the government 13.4 billion pounds last year.

The government has been accused of talking the economy down after finance minister Alistair Darling said in an interview published on Saturday that conditions faced by Britain and the rest of the world ‘are arguably the worst they’ve been in 60 years’.

The pound struck a record low against the euro on Tuesday for the second day in a row after the bleak economic assessment. — AFP