Stamp duty isn’t just unpopular, it’s gumming up the housing market and leaving people stuck in properties totally unsuitable for their needs. The next government must raise the threshold or ditch it altogether, says Emma Revell
The housing crisis is, at its heart, about supply. For decades, we simply have not built enough homes to keep up with demand. Back in the 2010s, the government set a target for housebuilding in England of 300,000 a year. Not only have we come nowhere near reaching that, but my colleagues at the Centre for Policy Studies have calculated that to keep pace with migration, we should have built far, far more. On ministers’ own methodology, we needed 1.68m homes in England during the last parliament. In fact there were just 657,810 new build completions over the four years – leaving us more than 1m short.
But even when we do actually build the homes, we make it far too hard to buy them – thanks to possibly the worst tax in Britain.
Polling claims that stamp duty, or stamp duty land tax to give it its full name, is Brits’ second most hated tax, second only to inheritance tax. It is levied on house purchases over £250,000 (the average house price in the 12 months to January 2024 in England was £299,000). First time buyers are exempt, providing their first property is worth less than £425,000. But that means everyone else who may wish to buy a property is whacked with a significant extra cost when thinking about selling up and moving elsewhere.
This is a huge barrier not just to buying a home, but to living in the kind of home that best fits your family, your job and your life. Lots of people on the left howl about the fact that we have too many spare bedrooms in Britain, as though you could somehow magically reallocate bedrooms with Stalinist efficiency. But one of the big reasons for that is that people who purchased their current homes when they had growing families often find themselves, many years later, living in homes which are larger than they need or want.
Some people enjoy having more space than they need. But others would undoubtedly prefer to move to smaller properties which are more suited to their current needs. Larger homes are more expensive to maintain and to heat and people are often thinking ahead to very old age, when reduced mobility may mean a preference for fewer stairs.
It isn’t only about the type of property, but the location. Maybe people want to move closer to the kids and grandkids or out of the city and to a more rural spot. Every one of these potential movers is sitting in a house that isn’t meeting their needs and would almost certainly suit somebody else better, yet the prospect of a hefty tax bill means they’re stuck.
This isn’t a hypothetical problem based on imaginary pensioners with dodgy knees. We know that the tax is gumming up the housing market and inhibiting sales because recent years have seen various holidays and freezes on the tax, all of which resulted in more house moves. During the pandemic the government temporarily raised the threshold to £500,000 in order to stimulate house sales, the year to June 2021 saw 19 per cent more overall transactions than the previous year. We’ve also seen the number of times people move in their lifetimes fall dramatically, because it’s simply too expensive to do so.
In fact, stamp duty is such a bad tax that getting rid of it would be cheaper than you think – or certainly cheaper than the treasury thinks. During the stamp duty holiday, stamp duty revenues actually rose by 27 per cent in Q3 2021 compared to Q2, from £1.1bn to £1.35bn. Because more people were buying and selling.
Some people have criticised proposals to axe stamp duty, and indeed the stamp duty holidays we’ve had, as a handout for wealthier house buyers. But that’s not quite fair.
Because the tax is levied as a percentage of the purchase price, of course buyers of more expensive properties get more in cash terms from a stamp duty holiday – and would save the most if the tax were abolished altogether. But there would be wider benefits too. Increased housing transactions would send a powerful signal to developers that if you build it, you can sell it, thereby boosting supply at all levels of the market.
It is understandable that politicians, especially Conservatives, find it difficult to advocate for changes which can be seen as helping wealthy buyers in London and the South East. But we need to be honest about the damage we are purposely inflicting on ourselves. Stamp duty is an awful, unpopular, ineffective tax. If the next Government really wants to fix the housing crisis, then hiking the threshold – or ditching it altogether – has to be part of the plan.
Emma Revell is external affairs director at the Centre for Policy Studies