Real estate specialists are calling on Shadow Chancellor Rachel Reeves to scrap stamp duty in the Tories’ next budget. They hope this change will help stabilize the housing market and increase general economic activity. The forceful call came in response to recent industry leaders’ comments. Kirstie Allsopp, of Location, Location, Location fame, warned that the public are increasingly becoming alarmed at the prospect of radical change to this tax.
As of now, all of these are daily issues that people are freaking out over. They are worried by talk of the government watering down current stamp duty regulations. Taylor Wimpey, one of Britain’s largest housebuilders, just reported a year-over-year decline in UK sales during the all-important autumn selling season. They attributed this slump to budgetary uncertainties and the consequent reluctance of prospective buyers.
“It’s relatively easy to collect. It’s quite difficult to avoid. It raises revenue. Kate Willis from the Chartered Institute of Taxation told MPs that economists are united “in almost every way.” They think it’s a distortion of economic activity. As Leunig said in no uncertain terms, • Ensure that stamp duty land tax avoids hampering mobility. As a result, each and every citizen experiences its pernicious impact.
As it stands, stamp duty is charged on property purchases over £125,000 and its effects are most sharply felt by those entering the housing market for the first time. Richard Donnell explained that almost four in ten first-time buyers on Zoopla will now be paying stamp duty. For these buyers, the typical bill is just under £16,000, about 3% of the value of the property. In London, this figure jumps off the charts, with almost 80% of first-time buyers forecast to pay the tax.
Also sounding the alarm on the harmful impact of stamp duty on economic mobility was Leunig. He announced that stamp duty land tax is a huge loser for every last individual in the kingdom. Part of that cost is a punitive tax on people who dare to relocate. He challenged this restriction as unnecessarily curtailing the pool of jobs available to those looking for higher wage work. This, in turn, causes a lower GDP and lower tax returns.
In contrast to the existing system, Leunig proposed an alternative: an annual property tax applicable to homes valued over £500,000. For the full model, he proposed an annual property tax of 0.54%, with an increased rate for homes valued at more than £1 million. In a rare healthy dose of common sense, he called the notion of taxing luxury purchases differently “problematic.” After all, why should a person who pays £2 million for a home in the UK be taxed any differently than someone who buys a £1 million house in southern France or a yacht, he argued.
Allsopp continued to express these concerns in her testimony before the Treasury Committee. She implored the audience to stop calling the purchase of property a “sin.” She says this approach penalizes prospective purchasers for seeking to improve their housing stock. We should be wary of the tendency to cast property acquisitions as inherently immoral, as she said publicly. Yet everyone tells us that it’s good economics to get people to move.
Even with the call for action, experts warn that getting rid of the stamp duty won’t be enough. Leunig pointed out that in practice, such an action could have the opposite effect of raising house prices, especially in areas with high demand, such as London.