Why we should scrap stamp duty for homes under £500,000
Stamp duty is an old-fashioned tax that restricts movement in the property market and generates minimum revenue for the Government In my opinion it is no longer fit for purpose.
The current stamp duty holiday for properties up to £500,000 has demonstrated this and has highlighted what can happen to the housing market when this prohibitive tax is removed. In short, the housing market absolutely flies, despite us being in the depths of a pandemic.
The holiday has been a welcome boost for the market and its recent extension will enable more people to complete their moves over the next few months without being hit by the prohibitive tax. However, now is the perfect time for the Government to look at permanently abolishing it and instead introducing alternative ways to tax people that are more proportionate to their wealth and current market conditions.
So what are the problems with stamp duty? At present, everyone pays the same amount, based on a property’s value, no matter what their financial circumstances. This means it is hugely prohibitive for many people. It stops people moving up the chain but also stops older people downsizing and moving down the chain. This means there are lots of older people living in large, family homes with more space than they need because they don’t want to get stung with a huge stamp duty bill if they move to a smaller property.
It also means lots of growing families are unable to move up the chain because of a shortage of larger properties coming on to the market, as well as the huge stamp duty costs associated with trading up.
Essentially, the tax stifles movement in the market while making home ownership unobtainable for many. By permanently removing the tax, we’d see downsizers releasing sought-after property, plus huge amounts of equity that would likely go back into the economy too. This would stimulate market activity across the board, with more people moving up and
down the property chain into properties right for their circumstances.
It would also make it easier for first-time buyers to step on to the ladder as more first-time homes become available as people move through the chain. The value of properties across the UK has also increased massively over the past 10 years but the stamp duty thresholds haven’t risen anywhere near in line with them, so stamp duty has become a tax that many people who would not have paid in the past now do.
It is no longer just a tax on the wealthy. So what is the solution? Recently, there has been lots of talk among market experts about completely abolishing stamp duty and council tax and instead introducing a new tax that reflects the current value of people’s properties. I believe this would be a viable, positive solution if it’s done at the right rate.
Council tax is even more out of date than stamp duty – 30 years, to be precise. It is based on property values in 1991 so it is absolutely in need of reform to align it with current property values. By combining the two taxes and reworking how they’re calculated based on people’s current circumstances and property values it would help make the whole process fairer.
Another option would be to introduce a sales tax, so the person selling their home pays a tax based on its current value, rather than a tax on the value of the home they’re purchasing. However, I think this would discourage downsizers to move and also inflate market values, as people would try to sell at a higher price to cover the cost.
The best solution for now is for the Government to completely abolish stamp duty on properties up to £500,000, which would immediately ensure huge numbers of buyers no longer have to pay the tax. This should then be looked at again every two to three years and the limit should be reassessed, based on house-price movement during that time.
*Mark Manning is managing director of Yorkshire-based Manning Stainton estate agency.
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