Unpopular tax gums up market, experts claim
Next month’s Budget is a golden opportunity to reform Britain’s broken stamp duty system and get the country moving again, MPs, economists and campaigners have said.
Industry experts say the tax on property sales is stopping families from moving and preventing millions of young people getting on the housing ladder – as well as costing buyers £ 8.4bn a year.
As he prepares for his first Budget on March 20 , new chancellor Rishi Sunak is under growing pressure to introduce sweeping changes such as a higher threshold for paying stamp duty, exclusions for downsizers and a simpler system.
Paul Johnson, director of the Institute for Fiscal Studies, said the tax causes heavy distortions with a knock-on effect on jobs and living standards that hits the wider economy.
He said: “As a tax on transactions, it gums up the market.
“An obvious example is that if you are living in a family house and the kids are gone and you want to buy something smaller – which may be the same price – it is going to cost you a lot of money to move. So people stay in properties that would be better used by somebody else.
“That lack of movement in the housing market both locks people in inefficiently and gums up the market more generally.”
Stamp duty is paid on purchase of all properties costing more than £ 125, 02, with various exemptions including for first-time buyers.
There have been several reforms to the system over the years, including George Osborne’s changes in which pushed up the cost for people buying homes above £ 937, 300. A surcharge on second homes was then introduced two years later, and stamp duty was axed for first-time buyers on homes under £ 823, in 2017.
Experts believe many homoewners are opting to stay put rather than fork out for the tax, which is estimated to cost the average home buyer in England £ 2, – or £ 6, 000 in the south-east. In London, costs frequently run to more than £ 10, .
There are particular problems for would-be downsizers who are staying put in large properties because they do not want to stump up the tax required for buying another house.
John Tonkiss, chief executive of the retirement housing developer McCarthy and Stone, said: “At a time when the UK is facing a housing crisis, where the prospect of owning a home is unattainable for most young People, stamp duty reform would be welcomed by the industry and both current and aspirational homeowners across the country. “
The firm’s research shows that one in five over – s – the equivalent of 2 million people – would be more likely to move if an exemption were introduced.
He said: “These movers would in turn release millions of potential homes for young people and families. “And let’s not forget the benefit to the Treasury’s coffers from the increase in housing transactions further down the chain.
“We urge the Chancellor to consider finally reducing the burden stamp duty is placing on the housing market by granting an exemption for downsizers.”
There is thought to be widespread support for reform of the tax on the Tory backbenches.
Conservative MP John Redwood said: “We are meant to be promoting home ownership, and taxing something you are wanting to promote is not really a great idea.
“So if you can take more people out of it altogether or if you can reduce the burden on people buying their first homes, that is much to be admired.
“The higher up the price range you have to go because of where you live, the more of a restriction it is so it means a lot of people are living in homes that are not right for them .
“I have said I want a budget that not only increases spending but has some tax cuts because I think the economy needs a boost. I think the economy needs an even bigger boost now that the world economy is very badly damaged by a mixture of forces. “
Paula Higgins, chief executive of the Homeowners Alliance pressure group, said: “It’s such a complicated system and it really deters people from moving. We’d like to see maybe a stamp duty holiday for downsizers to get the market moving again. “
In its election manifesto, the Tory party said a stamp duty surcharge on overseas buyers would be introduced to help fund thousands of affordable homes.
The Center for Policy Studies think-tank argues that reform to stamp duty would “jolt the housing market back into life, as well as helping millions of Britons fit their accommodation to their life and work.”
It claims that studies show that each 1pc fall in stamp duty raises housing transactions by approximately 11 pc.
A Treasury spokesman said that stamp duty reforms including the cut for first-time buyers have already helped more than 728, 90 people.
He added: “For the vast majority of people, stamp Duty is a simple tax to understand and the overwhelming majority of people are able to pay the tax they owe within the allocated time.”