There have been significant changes in the way stamp duty is calculated in recent years, the result of which is that with the exception of properties sold under £200,000, buyers now pay higher levels of stamp duty than ever before.
The first change occurred in 2005 where stamp duty went from a flat rate of 1.26% of a property’s sale price to a tiered system. At first sight it may have seemed logical to increase the stamp duty, especially when the property market was performing so well and full of property speculators, but with the passing of time the logic of the current tiered system is becoming harder to justify in my opinion.
The stamp duty system we currently have was introduced in 2010 and since its inception has been a topic of debate as it can produce some rather bizarre results.
Advocates of the current system will obviously point out that a property sold for under £200,000 attracts no stamp duty and this benefits many of the local population, especially those buying in Government assisted housing schemes such as Montagu Gardens and Harbour Views, but what they fail to mention is that by imposing thresholds the current system has a distorting effect on many sectors of the local property market.
For those that are not familiar with the current system I will try to summarise it. If you buy property in Gibraltar for up to £200,000 then no stamp duty is payable, but for properties with a value between £200,000 to £350,000, stamp duty is payable at a rate of 2% on the first £250,000 and the balance attracts a rate of 5.5%, whilst a buyer of a property with a value in excess of £350,001, will pay 3% on the first £350,000 and 3.5% on the balance of the purchase price.
So what is the problem with the current stamp duty system you may ask. Firstly I would respond by asking what is the point of it? Why not just have a flat rate of stamp duty irrespective of the purchase price instead of setting arbitrary thresholds?
In my opinion the current system unfairly prejudices vendors with properties priced at just over £200,000 for the very simple reason that in today’s economic climate where lending institutions have reduced their lending ratios, buyers are struggling more than ever to find the deposit to purchase a home. It is therefore understandable why vendors with a property priced slightly above the current stamp duty threshold of £200,000 often find themselves in the position of having to reduce the selling price to below the market value in order to secure a sale.
If this is allowed to continue it could result in property prices in the shared ownership schemes being unfairly held back, and directly affecting the very people it was partly designed to assist. It also means that a property speculator can buy as many properties under £200,000 as he/she wants without paying any stamp duty. However a family in need of a 4 bedroom property for example and who arguably need as much financial assistance as possible, have to pay stamp duty on their new home if the price is £200,000 or over. Does the logic of the current system now look to have wobbly foundations to you too?
Another issue that has cropped up since the change in stamp duty came in to effect is that Land Property Services (the Government’s Land Agents) are increasingly questioning whether the declared purchase price was the true market value. It is only right that they question a price where they feel there may be grounds to do so, but with such potential savings in stamp duty it is just a matter of time before a vendor and buyer will conspire to under-declare a purchase price and this could easily be avoided if there was just one flat rate of stamp duty.
Those familiar with the Spanish property market will be all too aware of the common practice of purchasers under-declaring the purchase price of a property in order to save on the their purchase costs. Whilst it is clearly illegal to do so and I do not advocate that one does, it does show what could happen if the current local stamp duty system continues in the same format.
I do not profess to have all the answers, but to me it would seem sensible for the Government to apply a flat rate of stamp duty irrespective of a property’s value and consider waiving stamp duty completely for first-time buyers who have resided in Gibraltar for a minimum amount of years and meet residency requirements.
Sometimes the simple solutions are the best ones!
If you have any thoughts on the current system I would be pleased to hear from you.
Justin Bray
