UK raises tax threshold for first-time homebuyers

LONDON: The British government scrapped tax for around 90% of first-time homebuyers on Wednesday (March 24), boosting housebuilders' shares as analysts predicted further house price gains.

For the next two years, first-time homebuyers will be able to buy properties worth up to £250,000 (RM1.25 million) without paying stamp duty.

"I can announce I will double the stamp duty limit for first time buyers from midnight tonight for this year and next," finance minister Alistair Darling told parliament. "This means 9 in 10 first time buyers will pay no stamp duty at all."

Darling said the relief would be funded through an increase in stamp duty to 5% on residential property selling for over one million pounds, but not until April 2011.

By encouraging first-time buyers into the market and spurring those considering top-end properties to bring forward purchases, the measures could provide a powerful short-term lift to the UK’s housing market.

After shedding as much of a fifth of their value in 2008, UK house prices rebounded for much of last year but appear to have lost pace again at the start of this year.

The cooling in the market in January and February has been partly blamed on the government's decision to end a temporary tax holiday on the purchase of properties worth less than £175,000.

"This rabbit from the hat is going to help get the property market moving again," said Marios Gregori, a tax director at accountants PKF.

"Add in the prospect that interest rates are likely to stay low for a long time and that banks are being encouraged to increase lending to home buyers, and you have quite a favourable climate for a recovery in the residential property market."

Under current rules, stamp duty is payable at 1% of the purchase cost on properties between £125,000 and £250,000, 3% on properties over £250,000 and 4% on properties over £500,000.

However, some voiced concern that the changes would make the system more complex.

"The technical definition of a first-time buyer may be more complicated than it seems," said Chris Sanger, head of tax policy at Ernst & Young. "This adds red tape."

The Council of Mortgage Lenders reckons around 92% of first-time buyers would have been exempt from stamp duty if the £250,000 threshold had been in force last year.