Ditching Stamp Duty ‘to drive 70,000 more property sales a year’
Claim is made by Dan Neidle's Tax Policy Associates, which says its research shows why Stamp Duty is such a brake on the housing market - and suggests some solutions.
Estate agents who suspect that they would have a lot more homes to sell if Stamp Duty were abolished or reformed have some new data to back them up.
Not-for-profit company Tax Policy Associates (TPA), which was founded by campaigning accountant Dan Neidle, says it has used official statistics to work out how many more homes would be sold if Stamp Duty was abolished.
Its figures are based on Office for Budget Responsibility projections that shows for every 1% Stamp Duty is reduced by, 7% more homes under £250,000 are sold, 4.5% for those between £250,000 and £1m and 6% more for properties over £1m.
Using the data underlying these figures, TPA says it estimates that houses around the around UK house price of £291,000 would see an uplift in transactions of 7%, and that overall some 70,000 properties would be sold every year if Stamp Duty were to go.
“Each of these deterred transactions has a cost, in reduced labour mobility, inefficient use of land, and reduced economic growth. We also shouldn’t forget the human cost: being unable to move house makes people miserable,” says TPA’s report.
“The effects aren’t limited to homeowners. Because SDLT depresses transactions, it reduces the rate at which developers at which developers can sell, therefore delaying their recycling of capital into new housing supply, and tightening the pipeline of new homes.
“So there is a powerful case for abolishing stamp duty.”
But the report also warns that abolishing Stamp Duty will create problems as well as solve them – namely that Stamp Duty raises too much revenue to be binned without a replacement – as Chancellor Rachel Reeves has flagged this week via her ‘leaked’ policy plans.
TPA says taxing principal home owners via CGT would be ‘as damaging as Stamp Duty – perhaps more so’.
Instead it suggests replacing the levy and council tax with an annual land value tax on the undeveloped value of land.
“Like any significant tax reform there would be winners (people who expect to move house) and losers (people who don’t). That could make it a hard political sell,” it says.
Will it make a difference ? Sellers will up the price of the properties…..
I’ve seen two suggestions for what might replace SD. 1) charge SD on homes over £500k – The government’s aim in shifting from Stamp Duty to a seller’s levy would be to increase revenue. Since Stamp Duty currently brings in money on purchases under £500k, scrapping it means that income has to be replaced elsewhere. A new tax on sellers of homes above £500k would therefore need to be set at a penal level to make up the shortfall and deliver extra funds.
The result could be that many owners at the upper end of the market will hold back from selling. Especially the elderly living alone in large houses may decide it is cheaper to stay put than downsize, even if a smaller home would better suit their needs. That would trap under-used housing stock, reduce the flow of family homes coming to market, and ultimately work against both buyers and sellers.
If the seller’s levy is banded, that will create all kinds of issues. A straight percentage would be less disruptive, but, whichever way you look at it, the level of taxation would have to be finely set to not adversely affect the market.
2) An annual levy on homes over £500k, presumably sharply higher than current Council Tax. Another lovely idea – if the intention is to completely screw the property market, society and the country. This still hypothetical proposal if applied would again be sharpest for those who are asset rich but cash poor. An elderly couple in a £700,000 house, living on a modest pension, would likely face an annual levy running into thousands. The choice is brutal: sell and downsize below £500,000 or see savings drained into additional tax.
The £500,000 threshold would quickly warp the market. Demand would surge for anything priced under the line, pushing up the value of smaller homes, pushing FTBs out of the market, and erasing much of the gap between one-beds and three-beds – a bubble. Who, with a £400k home would want to move upmarket? The objective for many would be simply to buy a home under £500k. Families, sellers, and developers would all target this narrow band, leaving the mid-market stuck and mobility suppressed.
And, who would decide a property’s value? If purchased recently, it would be relatively easy. If not, then what? Valuations on every house? Maybe instead they’d use Council Tax Bands. Whatever, it’s a terrible idea. This could be Mrs Reeves Poll Tax Riots moment.
You say ”a lot more homes to sell if Stamp Duty were abolished or reformed ” – but surely this depends entirely on what its REPLACED with!