End in sight for VAT and stamp duty breaks

Toy house

VAT and stamp duty will both return to normal levels on 1 January 2010, Alistair Darling confirmed in his pre-Budget report.

The chancellor announced the VAT rate will return to its standard level of 17.5% on 1 January after it was temporarily reduced to 15% on 1 December last year.

He also confirmed that there will be no further extension to the stamp duty holiday, which came into effect in September last year. The incentive, which temporarily increased the stamp duty threshold from £125,000 to £175,000, will end as planned on 1 January next year.

Darling also announced that the inheritance tax (IHT) threshold will remain the same over the next tax year. Raising the IHT threshold is not “a priority”, he said, so the government has decided to freeze this allowance at £325,000 in 2010/11.

He pointed to the fact that in 2009/10 just 2.5% of estates left on death are expected to be liable to IHT.

Commenting on the end of the stamp duty exemption, David Whittaker, managing director of Mortgages for Business, says: “Darling has seen house prices rising over the course of 2009 and feels the market no longer needs the support."

He adds that the stamp duty holiday didn’t do a great deal to support the market: "Cash-rich investors and those lucky enough to have large deposits have been propping up the market for much of the last six months."

With this type of buyer fast becoming thin on the ground, and lenders continuing to impose tough criteria, Whittaker says 2010 is unlikely to see much improvement in the property market.

"In fact we’ll see a reversal,” he warns.

James Thomas, head of residential investment and development at Jones Lang LaSalle, is also disappointed that the chancellor will not be extending the stamp duty holiday into 2010 - given the struggles faced by first-time buyers trying to get onto the property ladder.

“This incentive has provided a stimulus to the bottom end of the property market during a time when access to debt has, and continues to be, very restricted and expensive. This in turn has supported other buyers looking to upscale through the market,” he says.