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.

I live in a 4 bedroom 3 bathroom house (ok it’s a crap new build, but still). It’s worth about £525k. My mum lives a couple of miles away in a 2 bedroom bungalow (1 bathroom) with a smaller garden than me, worth about £525k.

Fair point. Anyone downsizing, then. It is just that older people tend to downsize. I am 61 and wouldn't consider it yet, and none of my friends would, but maybe in later years.

Council tax is already very high - we pay nearly 4k per year for a fairly standard 3 bed house.

I do agree with you though that stamp duty feels like a fairly unfair tax - buying a house is a stretch for many people as it is, and paying stamp duty on top of conveyancing fees, estate agent fees etc can make buying very difficult for many low to middle earners. A tax on profits made when selling (capital gains) is much more logical, as its a percentage of money earnt rather than trying to find extra.

Those downsizing from big houses have quite specific wants that developers rarely provide. Large rooms (not pokey) preferably all on one level, room for guests, outdoor space. When these places come on the market here they command a high price due to their rarity.

Well that's nonsense. There is no reason whatsoever why revenues couldn't be raised in other ways.

No-one is saying that pensioner 'have' to downsize but currently if they want to, there is a disincentive to do so.

The point about increases in house prices - whilst it's true the the transaction values would be higher, your house is now worth more so it doesn't matter. Instead of losing money (to SDLT) you have converted your cash (assuming you are a cash buyer) into value in a property, so you have retained it. You equally retain it in all future transactions.

I absolutely agree it should be per adult, as that links to earning capacity, but that was tried as the poll tax and there were so many protests it's was abolished.

Because freeing up large family houses will enable everyone else to move up when they need extra space, without building millions of extra 4 & 5 bed houses which is what Labour had planned, but does not have the workforce to deliver.

If each person could sell once, specifically to downsize, after the age of 65, it might smooth the housing market, reduce the amount of building necessary and enable councils to be paid for residential care, faster. Older people could move into smaller, more accessible homes, making care in the home easier too.

It would make the whole process more efficient.

@Gnarab24

How is that a benefit?

You are claiming that abolishing SDLT would leave prices unchanged and therefore there is no benefit, but I don’t think that stands up to scrutiny.

If the waiter delivers the wrong dishes to everyone at the table, then you benefit from swapping them around so that everyone has the one they want, even if the restaurant doesn’t knock anything off the bill.

Evidence from short-term SDLT holidays suggests that 60-90% of the tax save gets translated into increased base price. So after-tax prices do fall, by a percent or two. Not massive but not nothing.

It should also increase fundamental supply, by reducing the number of spare rooms. Also a good thing.

Hard to model though — if you let people move to where they want to be more easily then those places become more vibrant/attractive (deeper networks), which itself may push up prices.

But that would be less than I currently pay in council tax. So you’ve now cut tax take on two fronts. Where are you increasing tax to compensate?

Excellent idea, my house hunting budget just expanded. What’s your idea for replacement tax to raise revenue to pay the UK’s hideous benefit bill? Maybe higher taxes for lower and middle earners?

How about a 100% tax on estate agents commission ?

Increasing the council tax on large houses.

Stamp duty should be reformed imo, keep it for second homes and foreign buyers but it should be scrapped if you're buying a residential property.

If council tax reform happened I'd have to sell up as I couldn't afford to pay 0.5% of my property (I'm in London)

Why should someone like me, (who can't even afford the deposit for my own property, and am forced to rent), be burdened with higher council tax, just so people like you can save on your tax duty?!

My point is - if a downsizer is a good thing for the housing market then it's a good thing whatever their age, so I am not sure why you'd limit it. This would also create a massive disincentive for anyone who is approaching 65 to downsize (when they might have otherwise). 'Cliff edges' in tax thresholds (or in the case age is applies) tends to have quite a corrupting influence on peoples behaviour.

If each person could sell once, specifically to downsize, after the age of 65, it might smooth the housing market

This sounds like an administrative nightmare!

@Dingledongledell

it would need to be far higher to replace stamp duty and standard council tax. We are already paying just shy of £3k on a £450k house per year!

You're not seriously saying your SDLT would amount to £150k?

A £2m property (for someone who only owns one home) would attract a 150k SDLT bill. Very common in London.

ETA - make that 1.6m if you have an additional property.

I want a two bed bungalow with a small garden.

Where I live, that's about £600k. They are in huge demand for obvious reasons. My alternative is to buy a small plot of land and have it built myself. That's unlikely to save me much, after architects, contractors, land values & bridging loan.

I've tried to get planning permission to divide my existing house and garden into two flats and have been turned down.

So I'll stay where i am until a sensible alternative presents itself.

You think stamp duty is expensive in the UK - try spain! Mine was nearly 10% of the purchase price and solicitors fees were about €8k. And if you sell your main residence, you have to buy a new one in spain within 2 years or pay capital gains tax on the profits. If there are any as most real estate agents charge 5%…

These are the people who typically benefit from massively increased housing prices though. It should perhaps be covered by capital gains instead, but many people have massively profitted from owning property. That profit should be taxable.

@Icanttakethisanymore

If each person could sell once, specifically to downsize, after the age of 65, it might smooth the housing market

This sounds like an administrative nightmare!

And yet they manage it for first time buyers....

House prices would just rise, instead of the money going to the government, it would go to the banks instead.

No real change, no extra money in your pocket

But why would you bother? If it’s good for people to downsize, let them do it twice!