What if Stamp Duty was abolished?

[Dingledongledell]

I work in an industry that hears lots about tax policy. Stamp Duty is widely regarded to be the UKs most stupid tax. It stops people loving house when their house no longer meets their needs and prevents them from moving areas to take new jobs. It is incredibly economically damaging.

I have a big house as we bought it to accommodate multigenerational living. My MIL is now in a care home and I’d love to downsize. I’d love to live mortgage free, but if we downsized to a property £150k cheaper than our current house any savings would be largely eaten up by stamp duty.

I feel trapped in a big house with a big mortgage. We paid a vast amount of stamp duty to move here not too long ago. We are surrounded by neighbours who have lived in their large houses for many many years. Why should I pay hundreds of thousands in stamp duty over the years just because we move house, when others can sit in vast houses paying nothing more than council tax? It makes no sense to me.

What changes would you make to your current living if stamp duty was abolished?

I appreciate that living in Scotland where stamp duty is far, far higher than in England just exacerbates this problem.

You're not wrong. It removes fluidity in a market that due to limited supply needs to be fluid.

So many people are in homes that are too large for their new needs, if they could sell and take money out of the property market it would be more beneficial to them and the economy and to the housing shortage. But they stay out because savings will get eroded by stamp duty.

At the moment people suspect a cut might be coming so are sitting tight (again) waiting for a policy change. Just do away with it completely on main residences and watch the market fly.

SDLT brings in £18b/year, how should the government raise the shortfall if it is abolished?

Raising council tax.

Why should I pay endless stamp duty if I want to move house when others living in similar properties don’t? Tax is either to extract wealth from those who are deemed wealthy, or is to discourage certain behaviour. Why am I seen as someone to be mined for money and yet the person next door not?

Tax Policy Associates have proposed rolling council tax, SDLT and business rates into a land value tax, partly because SDLT is such a drag on mobility. Last time I linked to it my post got hidden, but worth googling.

Well, we "could" scrap stamp duty and also scrap main residence relief for CGT so that you'd pay CGT on the unearned profit you made every time you moved house. Would you prefer that?

Good news, it's not endless! You only pay stamp duty once when you purchase another property.

We’re in Scotland and while it’s quite demotivating to me that we will have such a large sum to pay to get the house we want in the next 3-5 years, it really sucks for the elderly.

My parents are in a huge house with a huge garden, that was perfect for a family, but now for an older couple it’s just a hassle to clean and keep on top of the garden (also visitors just always assume they can stay with them). I would like them to live nearer me in a smaller property that they can manage but they’re worried about paying stamp duty and having less money for care, should they need it, in their old age.

My aunt has lost most of her mobility but lives in a first floor flat. It’s lovely and perfect for a young single woman who wants to host parties etc. but now she’s trapped up there without assistance to get out. She looked at moving to ground floor or a modern building with a lift, but the stamp duty is too much to justify this late in life.

Also a real shame about both properties as they are falling into disrepair slightly, whereas a new buyer could make them lovely.

Yes, and again if you move again etc etc. Which is exactly OP's point. people are incentivised NOT to move, in order to limit paying SDLT.

People have been saying for years that it's a massive break on the housing market and that certainly seems to be our experience.

We inherited MILs house 2 years ago. It's a modern house, in a little village in Cornwall lovely inside with a sheltered quiet garden. Perfect for people who want to downsize and relocate to the countryside. We had several viewings during the stamp duty holiday, but as soon as that ended we have had maybe one or two. Our EA say all enquiries for that sort of property have virtually stopped, partly due to the school holidays, but interest dropped before that.

They should abolish it or at least reduce it. The extra cost it adds to a house move is off the scale, and I think it is stopping people moving unless they have to.

It is deterring people from moving though. If they reduced it to a more sensible rate, tax take might increase! It happened when Osborne lowered Corporation Tax rates.

Yes it's also disproportionately affecting the elderly in my family. We know more than a handful of the generation above us who have mobility and cleaning issues but just can't afford to downsize.

I would support it being removed as part of a package of reforms that introduce a regular wealth tax and close the loopholes that make inheritance tax so inefficient at getting tax from the wealthiest estates (only 4% of estates pay inheritance tax and it's not the wealthiest 4%, who all evade it - it should be at least 25% of estates that pay something, with the wealthiest all included with no get-out clauses).

It doesn't make sense for there to be a penalty for moving when people who are way wealthier never have to pay because they would never leave the house that has been in the family for generations.

Wealth taxes would level the playing field. I'd favour a graduated rate - 2% on wealth exceeding £10m, 1% on wealth exceeding £5m, 0.5% on wealth exceeding £1m, 0.25% on wealth exceeding £500k and 0.1% on wealth exceeding £100k. It should be a normal cost of property ownership, regardless of how frequently you move, and including everyone at an appropriate level.

I agree, it’s a very stupid tax that actually increases house prices and clogs up the market because it makes the market illiquid and reduces supply. People can’t just slowly work their way up the ladder but have to go for the biggest house possible and stay there for 10 years +. It disincentivises downsizing, keeping elderly couples in 5 bedroom homes that families need. I think stamp duty should be replaced with a capital gains tax on main residences (currently exempt from capital gains) - which would mean that the people who have actually made a massive 150% profit on their homes would pay the tax and not the first time buyers. People would also be more willing to buy flats etc as if they didn’t increase in value then you’ve at least avoided capital gains tax.

Scrapping stamp duty would ruin this country. We wouldn't be able to replace the revenues and this tax is about the only thing regulating the housing market. Really stupid idea.

Tax wonks disagree. They all agree that it’s far any away the most ill conceived tax ever. Making most efficient use of our metre housing stock is vital. Incentivising people to move to take jobs is vital. It hampers both of those things.

CGT on Principle Private Residence would also stop people moving. That’s why a land tax makes sense. It charges people for living in big houses, rather than moving to big houses.

Oh and a wealth tax is also said by all tax policy experts to be disastrous too. It wouldn’t happen year on year, because after the first year no one with any wealth would live here! Sounds good in theory, would be disastrous in practice.

How much untaxed capital gain have they made over the years they've owned those houses? Perhaps the answer to scrapping stamp duty is scrapping or reducing the main residence relief for CGT? That way, there'd be some CGT when you sell the house rather than stamp duty when you buy it.

Another frustration I have with stamp duty is that it isn’t regional. Stamp duty is 10% on values over 325k here. In Edinburgh that’s a 2 bed flat in an ok-ish area. In the country that’s a 4 bed house.

So you want to raise council tax for EVERYONE so that those that have large, expensive houses can move more cheaply.

What about people who “flip” houses, be great news for them, would increase their profit almost exponentially.

Don't get me wrong, abolishing stamp duty would make moving affordable to me, actually raising council tax would probably make moving a necessity. It’s already our single biggest bill after our mortgage payment.

I think the government are missing a huge opportunity. There are so many elderly people in houses too big for them which could be full of families however the elderly often can't afford the stamp duty to downsize.

Say you pay 0.5% of the value of your house every year in council tax? £1m property would pay £5k, £200k property would pay £1k. Surely fairer than council tax?

I certainly think there should be exemptions for older people downsizing or moving to more suitable accommodation.

Bungalows are quite expensive, comparable to size (well they are round here anyway), in theory because they are land hungry, but they tend to have small gardens round here so possibly more it’s supply/demand. Add in moving costs and stamp duty it makes it very hard for people to move somewhere more suited to their needs, which would also free up family sized houses,

And personally this would increase our council tax, but at least the increased tax would be paid by everyone on our street too.

You then have everyone in certain areas (eg London) paying significantly more than people in other areas. Unless you mean like council tax where it was all done relatively at a local level?

The way this works in many EU countries is that the council sets the percentage.

Yes I think the stamp duty does prevent many moves. Someone buying my house - a normal three bed terrace - would pay almost £70k in stamp duty as I’m in London. A friend said it made more financial sense for him to pay £75k in rent a year than buy until he was sure he’d be buying for the long term. However the stamp duty holidays experienced in the past has only led to higher prices. An Australian study looking at longer than the recent holidays in the UK system found it led to increase I prices in every case.
But stamp duty does make money and simply increasing council tax won’t make enough of a difference, as it is it is an unequal tax anyway.
Land value tax has been suggested, so people would pay .5-1% of their property value in an annual tax (similar to some places in the US). But then those that live in high price areas - or whose house has gone up vastly over the years - will be penalised. That older couple who bought their modest house which decades later is worth £1m - do they have the funds to pay £10,000 every year? I certainly don’t have the £12,500 fir my house as I may be asset rich but cash poor.
Perhaps go back to council tax. Increase the amount if bands and update the valuations and do that more regularly.
Tgere have been many suggestions and many studies to try and make the system fairer and still give the government its money. But it will take a brave leader to implement any major change that requires people to pay more.