The UK Government is currently consulting on ways to reform the Stamp Duty regime. This year, this brilliant system produced an astounding £11.6 billion in income. With housing market dynamics continuing to evolve, policymakers are looking to the horizon for new solutions. They are most excited about getting a national proportional property tax on homes worth over £500,000. This initiative could address the concerns surrounding Stamp Duty’s impact on housing mobility and affordability for various segments of the population.
Stamp Duty is one of the many taxes imposed on property purchases. The tax now applies to all homes costing more than £125,000. The current structure provides tiered rates based on the appraised value of the property. First-time buyers get a big boost too, with no tax payable on homes costing less than £300,000. For homes worth £600,000, the starting rate is 0.54% from just £100,000. Yet this complication creates an intimidating barrier that hinders many potential buyers from even starting the process.
Colleen Babcock, Rightmove’s property expert, emphasized the challenges posed by Stamp Duty: “It is a huge barrier to movement, from first-time buyers to downsizers.” We’ve heard from countless prospective buyers who are outraged as they try to cut a path through the current morass. The varying rates can deter individuals from entering or moving within the housing market, leading to stagnation and reduced transaction volumes.
Recently, in ongoing discussions with wide ranging implications, numerous proactive think tanks and research foundations alike have advocated for state-wide alternatives to the current Stamp Duty framework. Instead, the Resolution Foundation proposes a more palatable gradual annual levy. Their aim is to provide some measure of tax stability and certainty for property owners. Meanwhile, the centre-right think tank Onward advocates for a 0.54% tax on properties valued between £500,000 and £1 million upon purchase.
The UK Government’s sudden interest in reforming Stamp Duty has surfaced in relation to wider debates about taxation and housing policy. A report by Dr. Tim Leunig for Onward has apparently already given serious food for thought in Treasury about whether and how to significantly change things. The administration has been very transparent about how they are looking to increase existing revenue streams. At the same time, pressure is mounting to liberate homebuyers from long-established travails.
Lucian Cook, head of residential research at estate agent Savills, issued a stark warning. He argued that a phased in annual levy would not be sufficient to compensate for the up front revenue lost from existing Stamp Duty payments. He emphasized that moving to a new tax arrangement should ensure there’s still enough money flowing into government coffers to keep things running.
Political support for replacing Stamp Duty with an annual property tax has been gaining momentum. Torsten Bell of the nonprofit Economic Mobility Corporation is one of those pushing for this change, arguing that it would make housing market conditions more favorable. People such as Simon French, chief economist at Panmure Liberium, warn that lifting Stamp Duty relief would result in huge net revenue. At the same time, they’re confident that this step will provoke a huge public outcry due to its highly controversial nature.
The talks continue. The UK Government’s stated aim is to balance its revenue-raising needs with the requirement to improve access to the housing market. The £13.3 billion raised from a separate tax in the last financial year suggests there may be viable alternatives worth exploring.