The proposed abolishment of stamp duty in England has created a fervor that has united economists, industry insiders, and future home owners against the proposal. Kemi Badenoch, widely believed to be the brightest star in the current Conservative leadership firmament. Her latest announcement, that a Conservative government will scrap stamp duty on the purchase of all main homes, smacks of desperation. This ruling has the potential to be a gamechanger for southern England’s housing market. Currently, this area is responsible for 60% of all stamp duty receipts.
Stamp duty has experienced significant reversals in recent years. In 2019, the revenue collected reached an all-time high of £11.9 billion before falling marginally to £11.6 billion in 2020. Yet those numbers shot up to £14.1 billion in 2022 and then rose again to £15.4 billion in 2023. Projections suggest that by 2024, stamp duty revenue will return to just £11.6 billion. This twist of a revenue stream underscores the controversy that has long swirled around the impact and equity of this excise tax.
Richard Donnell of Zoopla recently raised a criticism of the current stamp duty system. He noted that more than 800,000 owner-occupied households have postponed their relocation plans in the last two years due to the burden this tax imposes. This lack of movement might be especially true for older adults intending to rightsize or move.
Unlike for repeat buyers, the market is slightly better for the newcomers. This contributes to the finding that around 40% of homes for sale in England are affordable exempt from stamp duty for such buyers. However, this statistic varies significantly across regions. In the North East of England, 76% of homes available to buy cost no stamp duty for first time buyers. By contrast, only 11% of properties in London are eligible for this exemption.
Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown, made a key point. She argues that the removal of stamp duty might ease some financial pressure but would not resolve all the problems.
“For them, the enormous challenge is raising a deposit.” – Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown.
Coles pointed out that those looking to downsize, such as moving from a £750,000 home to a £300,000 one, are hit with a sauna of additional costs. The £5,000 stamp duty hits just a small share of those total moving costs.
The discussion around stamp duty goes far beyond the financial impact. It touches on issues of equity and whether or not homeownership is achievable for all. Lucian Cook, head of residential research at Savills, expressed similar fears over the likely consequences of scrapping stamp duty. He is concerned that the benefits may not be equitably shared by all homeowners.
“Given the way stamp duty works, this would be unevenly distributed across the country.” – Lucian Cook, head of residential research at Savills.
Last month, he issued a stark warning that scrapping stamp duty would end up being a “tax give-away.” This change would mostly increase property values rather than truly reduce expense for prospective homebuyers.
The new Chancellor, Rachel Reeves, is said to be looking at stamp duty alternatives that might avoid these pitfalls. Such changes would be a step toward establishing a more fair system that doesn’t unduly advantage some regions or demographics over others.
The issue of stamp duty is wrapped up in broader social narratives. Paula Higgins, chief executive of the Homeowners Alliance, captured the mood perfectly when she described homeownership as “one of the bedrocks of social order.”
“Homeownership is the foundation of a fairer and more secure society – but stamp duty has denied that opportunity to too many for too long.” – Paula Higgins, chief executive of the Homeowners Alliance.
As policymakers explore ways to reform or abolish stamp duty, they must weigh the potential benefits against the risks of altering a tax system that has been in place for decades. The implications will be felt far beyond economic circles, but in neighborhoods across America where the dream of home is still an elusive pursuit.