As UK policymakers contemplate changes to the current tax structure, the debate around Stamp Duty has never been more important. The current thresholds allow first-time buyers to buy homes without paying any Stamp Duty. If these reliefs are eliminated or curtailed, there’s a far better chance to raise new revenue by the billions. Now economists and property experts are trying to account for the ramifications of such decisions on the housing market—all too fragile—and federal finances.
At the moment, people buying homes worth less than £125,000 don’t pay Stamp Duty at all. New buyers gain from a relief on the tax on properties up to £300k. This relief has helped millions of middle-class folks to become homeowners, spurring a long last economic recovery. It has increased the number of dollars produced by the tax. In the last financial year alone, Stamp Duty raised £11.6 billion for the government, highlighting its importance in public funding.
Simon French, chief economist at Panmure Liberium, suggests that removing Stamp Duty relief could yield substantial financial benefits for the government. He noted that such a move “would be potentially incredibly lucrative but incredibly controversial.” This declaration highlights the precarious tightrope that lawmakers need to walk when it comes to generating new revenue while keeping the favor of their electorate.
Colleen Babcock, a property expert at Rightmove, emphasized the challenges posed by Stamp Duty, describing it as “a huge barrier to movement, from first-time buyers to downsizers.” Lastly, people do not enter or move around in the housing market due to these exit taxes. This would make the debate about reforming Stamp Duty ahead of the 2020 Budget more urgent than ever.
The Chancellor faces increasing pressure to find billions of pounds to bridge the gap between public spending and tax income. It would mean her current borrowing limits are suddenly at risk. To increase revenues further, they should look to reform Stamp Duty. Such changes would be a dramatic blow to state and local budgets. They would crucially change the balance of power in the housing market.
Stamp Duty is levied at different rates depending on the value of the property and category of the buyer, resulting in a patchwork of tax liabilities. Though certain properties like primary residences receive exemptions or special treatment, not all properties are afforded the same protection. With tax policy shifting, the value thresholds for Stamp Duty will be crucial to determining who is hit by this tax. This, in turn, will disproportionately shape future revenue.
Economists especially are looking at changes to Stamp Duty with an interested eye towards how this might affect government infrastructure borrowing and spending ability. The complexity of the current system poses a challenge to policymakers wanting to implement changes. The real challenge is in removing the barriers that these buyers face, without compromising public finances.