Vat on Property Purchases?

1st December 2002

T. Wyn Jones

I read somewhere that Chancellor Gordon Brown has refused to rule out the possibility of imposing VAT on property purchases which could mean property-purchasers having to pay thousands of pounds extra in tax.

I read somewhere that Chancellor Gordon Brown has refused to rule out the possibility of imposing VAT on property purchases which could mean property-purchasers having to pay thousands of pounds extra in tax.

The Government has tried numerous ways to slow down the booming housing market but because the economy is in such a dire state the one possible way – of reducing interest rates is not an option. However, if the bank of England take the decision to kick-start the economy by a reduction in interest rates they would only add further fuel the booming housing market.

So is this a possible method that the Government may use to slow down the housing market?

Assume the imposition of a of 5% rate of VAT (which is currently charged on alterations and conversion work) on your house purchase. This would push up the price of a £150,000 property by £7,500 or £10,000 on a £200,000 house. This coupled with the stamp duty charge will make a nice little earner for the Treasury on every transaction! At 17.5%, the highest rate charged on most goods and services would mean an extra £26,250 on a £150,000 house or £35,000 on a £200,000 property

Its notable that in Labour's 2001 General Election Manifesto, the party promised not to extend VAT to food, children's clothes, books, newspapers and public transport fares - but made no mention of house purchases.

There is no doubt that a “booming” housing market is not beneficial to the individual including those house owners who have seen their property rise by over 50% in one year as it is all relative. It would be much better if you could slash 50% off all house prices throughout the country, imagine the saving on tax and interest payments.

In the meantime due to a dramatic shortage of housing stock we have to live with the ever increasing house price which, and I’m sticking my neck out here will probably not come to an end in 2003.

Wishing you all a prosperous New Year.

Wyn Jones is a partner of McCartneys, Property Agents and operates from their Ludlow, Tenbury Wells & Cleobury Mortimer offices. For further information on Property Matters he can be contacted on Tel 01584 872153 or wyn@mccartneys.co.uk