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.

That's not really accurate, or indeed even the whole picture is it? Many people moan that there is a tendancy in later life to 'under occupy' houses. Now in part that's because people can affod to, but it is part due to the crazy stamp duty situation where somone wanting to down size ends up paying tens of thousands in stamp duty to do so. So they do't bother.

Likewise, there's a tendency to skip steps in the housing 'laddder' just because the transaction costs are so high. Which means that people tend to buy when they are older, and so they stay in rented longer. Gone are the days of a few years in rented, then a gradual move up the ladder. Stamp duty makes that an expensive game - over a decade or two you coulf be paying a six figure sum in stamp duty alone.

How about of stamp duty only on the incremental cost? Then if you trade down, nothing - freeing up larger houses. If you trade up from £300k to £500k you pay on the £200k...? The reduction in tax income from this is probably going to be offset by a larger number of transactions. Just an idea :)

@mondaytosunday

Perhaps go back to council tax. Increase the amount if bands and update the valuations and do that more regularly.

Probably the best way to increase council tax revenue. We don't have enough bands at the top end. We could do with several more high end bands, so that the billionaire with a £10m mansion isn't paying the same council tax as the pensioner with a £750k detached 4 bed home!

And yes, update council tax bands more regularly, at least every 10 years, and maybe even every 5 years. Do the job properly to catch people who've improved their homes with extensions, conversions, etc as they are often in the same council tax band as when they bought a decade or two earlier when the house was smaller and worth a lot less.

But raising council tax wouldn’t work. Comparing CT with stamp duty is like comparing apples and oranges.

The whole council tax system is ridiculous. I live in Birmingham which has one of the highest rates in the country as it’s one of the biggest councils. I won’t get into what a shambles they’ve made of the finances 😡

I pay considerably more per annum for my tax band than most London boroughs. Band A in BHam - £1,491
Band A - London - £849!!!!

They should bloody sort that out first!!

I do agree that the whole system needs a radical overhaul. Council tax, stamp duty and inheritance tax are all deeply flawed

Is it really that they can't afford to downsize? I imagine in most cases a smaller house frees up some cash which can then be used to pay stamp duty with some left over?
I can see that the huge stamp duty cost is a mental barrier though.

Or is it that they want a bungalow but there's a shortage so they cost more? So swapping e.g. a 4 bed house for a 3 bed bungalow doesn't actually free any cash?

And agree it's an illogical tax in general. It penalises moving which is already stressful and expensive. Stay in one place and you pay very little.

meh. I think you hate stamp duty because it's impacting on your choices. Most people are not impacted at all.

They definitely should review the thresholds - but if they did that then they'd also have to review the rates to avoid losing revenue.

A tax on the value of the house is not workable - how would the government get current values that everyone agreed with and how on earth would pensioners with large houses afford the 5% you're suggesting??

Scrapping stamp duty will raise prices because all of the people competing for a house have a set budget which includes stamp duty, so the budgets rises when stamp duty is taken out of the equation and hence the price rises, but the purchasers are not paying more. The cost to them hasn’t risen.

Thus differs for stamp duty holidays. The price rises then are also driven by an incentive to get the deal done prior to the end of the holiday. If stamp duty were scrapped for good this side of the stamp duty rise incentive would be removed.

Move to somewhere cheaper that isn't affected by stamp duty.

The pensioners would downsize and won’t have a stamp duty bill for doing so. Pensioners moving out of large homes is a good thing for our housing stock and ought to be incentivised.

why should pensioners have to downsize just because you don't' want to pay stamp duty though?

Stamp duty just needs rejigging.

If abolishing it would cause house prices to rise then surely that's an argument against abolishing it

I think Council Tax is the last tax that should be increased- it’s ridiculously high in many areas and is a very regressive tax, falling disproportionately on less wealthy people.

And the single person exemption should be made 50% as that’s a horrible extra burden on esp single parents but also all single people. Or it should just be made per adult rather than household and be done with it.

There might be something in what you say about stamp duty being economically damaging as things stand but I don’t think it should be abolished entirely - perhaps abolished or reduced for people’s first or only home, but definitely kept or even increased for additional properties.

Inheritance tax could do with going up imo, as could income tax on the most wealthy , and corporation tax.

I completely agree. I started a similar thread a while back. I need a bigger house for my family that's close enough to my elderly father to help with his care. In the area I would need, I'm looking at £50k in stamp duty.

How big are the houses all these downsizing pensioners are moving to that stamp duty eats up so much of their equity they won’t even contemplate it?
this actually shows that council tax is way out of step as well because it shouldn’t be cheaper in the long run to stay in a large 5 bed with all
the associated bills that moving to a 2bed flat or small bungalow.
This is just another thread demonstrating no one wants to pay tax.
Having been active in the housing market over the past couple of years the only thing that no stamp duty does is make houses more expensive as people are happy to pay ‘what they’ve saved’ over the asking price etc.
How is that a benefit? The housing market is a mess anyway.

You want to buy a house. Your budget is £1m. You are competing against others with a £1m budget. That’s £930k + £70k so you are looking at paying £930k. Stamp duty is scrapped and you still have a budget of £1m, as has the other people you are competing against, hence the £930k house is now £1m but you the buyer aren’t paying any more.

Maybe there is an argument for having a lower rate of stamp duty for people over 65 who are downsizing.

The benefit in removing stamp duty as a buyers cost is that it frees up the housing market. The downside is that the tax take is now missing. That tax take needs to be made up by more efficient property taxes such as land value tax.

Perhaps remove stamp duty if you’re downsizing.
That would have to be downsizing in terms of property size though, not price

It's not just on house sales. We ran a business from a rented shop unit in a high street shopping centre. When the lease ended, we renewed the lease. Being high street, the rent was around
£50k per year, and the new lease had higher rent than the old, so out outgoings were going to be much higher, and the landlord would be receiving higher rent on the new lease. The stamp duty was based on the new rent, and the length of the lease, and we had to pay it, not the landlord. It's bonkers.

tax is about the only thing regulating the housing market

How so?

I think Council Tax is the last tax that should be increased- it’s ridiculously high in many areas and is a very regressive tax, falling disproportionately on less wealthy people.

I agree, it's terrible in it's current format but it could be reformed to raise more revenue (by taxing valuable properties more) and be far more progressive.

Why would you want incentivise over 65s from downsizing but not people younger?

I ought to downsize but the costs of moving means I will just be paying tax and other people for me to have a lesser asset. I wouldn’t actually free up much capital. I’d rather keep my big house in case I need the money for care home fees.

Stamp duty is purely and simply a tax on moving house - which is a disincentive to everyone. It stops people moving for work; it means families are discouraged from moving to bigger houses and pensioners are discouraged from moving to smaller houses. As an older person, the reason I might move would be to downsize and release capital - but if a large chunk of that capital is eaten up in stamp duty and moving costs, why bother? If you want a mobile workforce and a housing market that works, then stamp duty should be notional rather than punitive.

I can see the issue. We want people to live in houses that suit their needs, so our housing stock is used to best effect, but the current tax regime does not encourage it.

When my dc leave home, I will be living in a 4 bed home on my own.

If I move it will cost me £20,000 in stamp duty, £10,000 in estate agency fees, £1,000 on a survey, maybe £2,000 in solicitors fees and searches, and maybe £3,000 in moving costs. That's assuming the first attempt at purchase goes through.

So realistically, £40,000 fees to move, plus the inevitable redecorating, and sorting the botch jobs and hidden issues in a different house & garden.

So it will cost me £60,000 to move, with a lot of stress and hassle, when I've spent 10 years renovating the house I already have.

I may wish to downsize and I certainly won't need a 4 bed house, but it's not enticing. I might as well stay where I am and just use fewer rooms.

It’s was a big factor in why my mum in her 80’s didn’t downsize
the reason for looking at downsizing was to go somewhere smaller with lower running cost
but it’s cheaper to stay where she is and spend the money it would cost to move with things like fees and stamp duty on running a house that’s way too big for her