Should stamp duty be abolished to help the housing market?

[Dorothyperky]

Nothing is selling in our area over £500k (south).

Every agent near us is seeing less sales and fewer instructions.

Also would it make a difference to you?

Yes, and replace both that and council tax with annual property tax on value of property (say 1%) as they do in most US states

Also, an annual property tax (say 1%) will encourage people to downsize once kids have left home etc.

That makes total sense. I was imagining that you were older/retired and downsizing but that isn't the case.

A 1% annual property tax would absolutely crucify people living in the south east.

Imo, estate agents frequently talk nonsense and are incompetent. Some outright lie. It's very convenient for them to blame SD/the government for the fact that their business is doing so badly. The reality, as I've already said is that we have already started a correction. I think we may see a bit of a boost if rates come down later in the year/early next year. Hard to say. Overall, I think that prices will fall over at least the next few years, particularly the more expensive homes.

I agree with you that your DS was wise to skip the flat stage and also that those who bought during Covid may well make no profit if they need to sell relatively quickly. I've seen quite a few homes advertised for less than the 2022 price paid.
If you are currently downsizing, it's probably not a bad time to get on with it but impossible to say without knowing more.

Not if it also replaces council tax. Maybe not 1% but whatever the level needs to be to replace both stamp duty and council tax.

in the US, depending on the state it is between 0.3% and 2%

It's not 40% at all. The great majority of estates pay zero IHT.

You're missing the behaviour aspect. Yes, a whopping chunk is 0%, but it's the leap from 0% to 40% (on the surplus) that drives the tax-planning behaviour to try to avoid it, which for most people is incredibly easy. It's a common saying that IHT is the most avoidable tax! If it went from 0% to say 20%, there'd be less incentive for people to do tax planning to avoid it, especially as IHT tax planning often costs several thousand pounds (often with yearly costs too if a trust). If, say, your estate is £1.1m you have a whopping £40k to pay and solicitors fees of £10k seems cheap to avoid it. However if the tax was only £20k, it's hardly worth £10k in first year set up solicitors fees and then maybe £1k per year thereafter, so people would just pay the tax instead.

That's exactly what I see in my business (small accountancy practice) literally every week, whether it's the IHT changes announced by the idiot Reeves, the pension changes she'd proposing (removing IHT exemption), or all the other cliff-edges and stupidly high marginal tax rates. When people get hit by a "large" tax hit, they take steps to avoid it, whether it's working fewer hours, putting monies into a pension, setting up a trust, "giving" income generating assets to a spouse, or whatever. When they don't get the "big hits", they tend not to make big changes.

We need ALL aspects of tax to be more incremental to avoid all these "big" hikes, and by doing that, we'll strip away most of the "behavioural" often damaging tax avoidance/tax planning steps that people take.

We really shouldn't have "marginal" tax rates of a whopping 40% for IHT, or 62% for earnings breaching the £100k level, or small businesses having to register for VAT and paying VAT on ALL their takings when they go from turnover of £89k to £91k costing them thousands. We need "smooth" curves of marginal tax rates across the board so there aren't the same damaging hikes that drive behaviour which is bad for the economy/country, i.e. doctors working fewer hours to avoid 62% tax thus increasing waiting lists etc.

But they never do that. They leave the original tax and dump an extra tax on top.

By taxing them out of their homes when they no longer have a wage coming in.

If I were elderly and the government was suddenly forcing me to pay a tax I couldn’t afford and never used to have to pay I’d rather spend my retirement in prison than pay it.

NRB goes up to £325,000. Average house price in England currently is £290,000.

I’ve heard her talk about cliff edges but not properly. Do you know why they won’t do anything about them?

Cool. It's well known that US gaols are full of silver haired tax refusniks.

The only explanation I’ve seen is ‘we can’t be giving tax breaks to ‘the rich’’

Ignoring the behaviours some of these thresholds create.

Spot the socialist 🤣

‘The rich’ really has become a catch all ranging from those who are on 45k a year all the way up to billionaires.

Late to the thread but this really resonates. A colleague of mine is selling their late parents' house, marketed at £1m. It hasn't been decorated since the 70s, electrics are just as old - and here's the kicker - there's no central heating! The place has original single glazed windows, which I'm sure look lovely and charming, but won't be helping with the heating issues.

They are in complete denial about the amount of work needed to bring the house back to standard and can't wrap their heads around the fact that (modernised!!) houses in the area are selling for £1.2m.

It's going to sit there rotting and falling into disrepair. So sad.

It should absolutely be abolished to help people move up the property ladder. Small houses are in the highest demand, but lots of people put off moving up the ladder due to the cost of stamp duty.

Abolishing stamp duty would free up smaller homes for first time buyers by encouraging people to move up.

It would also boost the economy (furniture shop, carpet shops, tradespeople etc)

Downsizing not only has the costs of selling and buying another property, but also the loss of good neighbours if you have them. And the process in England and Wales which is awful in my opinion given the scope for spivs and chancers.

Also many streets or even areas have houses all similar sizes.

Yes, DP and I both own our own houses (bought before we met). If it wasn’t for stamp duty, we would have bought a larger house together by now. However, stamp duty makes this financially unappealing, so we are currently taking up two properties instead of one.

The properties we own are small 3 beds that are highly sought after by first time buyers.

If stamp duty was abolished, Once the kids left home I could buy a house today and then sell it tomorrow for £10k more (I'd do my own conveyancing, market it myself. Move in while it sold). I could do that 4 times a year for £40k of untaxed income. That would be nice.

SO, sorry, very foolish idea. It would lead to higher house prices due to turning houses iinto a traded commoidity.

As of September, I will be the only person living in my 4 bed house.

I can either stay where I am or I can pay £20,000 for the pleasure of uprooting myself and moving to a smaller house in the same area.

I'm 62. That £20k will pay for an extra £500 heating p.a. for the next 40 years.

Why would I move?

I would abolish stamp duty, replace with housing market reform like the US where sales can happen in a month. No chains, all paperwork needs to be provided in advance of listing by the seller.
Council tax would need reform to off set the loss of stamp duty which would probably encourage downsizing. I'd include local anomalies across councils too.

Make the house market more liquid, it would benefit everyone.

@Meadowfinch You could free up lots of money by downsizing.
A 2 bed vs 4 bed is on average £2,100 cheaper to run per year

You would free up (on average) £200k which (after paying 20k stamp duty) could bring in £8k a year if invested in a pretty standard savings account or more from stock market. If you don't need the money, reinvest that money and after 10 years you'll have around £300k.

You may not really need / want that money. You may want to stay in your house. But those are valid arguments but I would say it's definitely financially worthwhile to downsize.

I agree we could do a lot to modernize house purchase process. There's a lot happening already which make things easier.

But the difference between here and the States is it's all a lot bigger. Housing is not the scarce resource it is here. In the US there's always some land where you can built some more. So that makes the commodification of housing harder to take root over there. We have already seen flats as money boxes where nobody lives in the big cities. If you took away the cost of acquiring property taken away completely, it would certainly come to a street near you. Rich people would buy up all the housing as investments. No one would live there. They'd sell to other rich people. Normal people would be even more priced out than they are now.