The debate surrounding stamp duty is gaining momentum. Kemi Badenoch’s statement regarding a potential Conservative government abolishing stamp duty on primary home purchases received a positive reception at the recent Tory Party conference.
Furthermore, speculation has arisen concerning Chancellor Rachel Reeves’ consideration of alternative measures to replace the existing stamp duty system.
Eliminating stamp duty could garner favour among prospective homebuyers, particularly first-time buyers, and has garnered support from sectors within the housing industry and certain independent economic analysts.
However, analysts suggest that the abolition of stamp duty on primary residences could trigger significant repercussions affecting buyers, sellers, and the broader UK economy.
Historical instances of temporary stamp duty relief, such as those implemented after the Covid-19 lockdowns, have been correlated with subsequent increases in house prices.
It remains uncertain whether a permanent abolition would exert the same long-term influence on property values as the transient stimulus provided by a stamp duty holiday.
Nevertheless, amplified demand is likely to translate into higher asking prices.
“If it’s a straightforward tax concession, it’s highly probable that the current stamp duty expense will simply be absorbed into property values,” notes Lucian Cook, head of residential research at Savills.
This, in turn, could lead to first-time buyers incurring lower stamp duty costs but facing the challenge of securing larger deposits.
“Given the operational mechanics of stamp duty, the impact would be unevenly distributed across the country,” Cook further elaborated.
It’s important to note that the Westminster government’s jurisdiction over stamp duty is limited to England and Northern Ireland, with Scotland and Wales managing their respective land and transaction taxes through devolved administrations.
Currently, a substantial proportion of first-time buyers are exempt from stamp duty in England and Northern Ireland when purchasing properties valued up to £300,000.
“For these individuals, the primary hurdle lies in accumulating the necessary deposit,” explains Sarah Coles, head of personal finance at Hargreaves Lansdown.
Data from the property portal Rightmove indicates that approximately 40% of homes currently listed for sale in England are exempt from stamp duty for first-time buyers.
While the majority of movers are subject to stamp duty, the applicable rate escalates at specific price thresholds.
Therefore, the potential benefits of abolishing stamp duty would be more pronounced for larger, more expensive properties.
This would invariably lead to notable regional disparities in the impact of such a policy.
According to Rightmove’s data, 76% of properties currently for sale in the North East of England are exempt from stamp duty for first-time buyers, compared to just 11% in London.
Richard Donnell of Zoopla highlights that 60% of all stamp duty revenue is generated in southern England, suggesting that the majority of the benefits from its abolition would be concentrated in this region.
Experts contend that a key advantage of abolishing stamp duty lies in its potential to enhance mobility for workers, buyers, sellers, and those seeking to downsize.
“Homeownership is the cornerstone of a more equitable and secure society, but stamp duty has unjustly denied this opportunity to countless individuals for far too long,” asserts Paula Higgins, chief executive of the Homeowners Alliance.
“Our research indicates that over 800,000 homeowners have postponed moving plans in the past two years, with stamp duty identified as a significant deterrent.”
The Institute for Fiscal Studies (IFS), an independent economic think tank, characterizes stamp duty as “one of the most economically detrimental taxes.” Their analysis suggests that individuals who frequently relocate to properties of varying values would particularly benefit from its removal.
For instance, it could alleviate a barrier for older homeowners who wish to sell their family homes but are discouraged by the associated stamp duty costs. Increased mobility among this demographic would free up properties for younger families, fostering greater fluidity within the housing market.
However, alternative perspectives suggest that the impact of stamp duty may be overstated.
“Consider someone downsizing from a £750,000 property to one valued at £300,000. In England and Northern Ireland, they would incur £5,000 in stamp duty, a relatively small fraction of the costs associated with estate agency fees and other expenses such as conveyancing and removals,” notes Coles from Hargreaves Lansdown.
“This raises the question of whether eliminating the tax would truly be a game-changer.”
Stamp duty contributes significantly to Treasury revenue, and its abolition would create a fiscal shortfall.
The IFS estimates that the direct cost of the Conservative policy could range from £10.5 billion to £11 billion in 2029-30, although the Conservatives’ own estimate is approximately £9 billion.
Any administration contemplating the elimination or reduction of stamp duty must address the fundamental question of how to offset the resulting revenue loss.
The Conservatives have indicated that they intend to achieve savings in other areas and that the policy will stimulate economic growth and the housing sector, thereby generating increased tax receipts.
The alternative would involve raising other taxes. As some analysts have pointed out, the crucial consideration is not what is eliminated but what replaces it.
While abolishing stamp duty on primary residences could benefit homeowners, it could potentially reduce options for renters.
The IFS suggests that it could discourage landlords from purchasing rental properties, as they would still be required to pay stamp duty.
The think tank argues that it would further enhance the relatively more favourable tax treatment of owner-occupation compared to renting.
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