The Conservatives announced they they would raise the Inheritance Tax threshold and abolish Stamp Duty for first time house purchasers.
Both policies are cynical or nonsensical or both.
Inheritance Tax has become a problem for many people in London and the South East as a consequence of the house price bubble, in reality a land price bubble. If it was not for that, it would not be an issue. Since the land price bubble is also a problem for house purchasers, surely that is what needs to be addressed?
Cuts in Stamp Duty will not help first time buyers. The effect will simply be to drive up house prices or prevent them from falling. The beneficiaries will be the house sellers. To propose a cut in Stamp Duty to help purchasers demonstrates a worrying failure in understanding of economics. That said, there is no justification for taxing property transactions per se. This merely discourages people from moving or selling, and creates shortages. Stamp Duty should be no more than is needed to cover the costs incurred by the Land Registry.
The appropriate way to tax land is through the right sort of land value taxation.
This would enable a Chancellor to make substantial cuts in other taxes. It would also address the problem of high land prices and then IHT could be allowed to wither on the vine.
As worrying as the Conservatives' lack of economic understanding is the corresponding lack of understanding on the part of journalists and media commentators who also seem not to appreciate what the effects of the proposals would be.
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