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'Stamp duty is UK's worst tax - scrap it to help housing market'

Stamp duty on property sales is gumming up the housing market, stopping people from moving to the jobs they need, and keeping people in houses that are too large for their needs, according to a free-market think tank.

A new report released by the Adam Smith Institute suggests that stamp duty is the most damaging tax Britain has, and scrapping it should be top of the Chancellor’s agenda in the run-up to the Budget on November 22.

The paper argues that stamp duty is deeply damaging to the UK housing market.

Economists in Australia found that a similar tax there was costing 75p for every £1 raised: the institute claims that with stamp duty costing British people £12 billion a year, this means the tax may cause as much as £10 billion worth of what it calls “deadweight losses.”

This happens because it says stamp duty gums up the housing market  by penalising people from moving house. While the lack of supply of new houses is still the biggest cause of the housing crisis, it is exacerbated by the duty stopping the existing housing stock from being used efficiently.

“By penalising older people for downsizing after their children have left home, for example, stamp duty stops larger homes from being sold to new families, making the effective supply of family-sized homes even tighter” says a statement from the institute.

“Since stamp duty creates a built-in cost to moving it also creates a roadblock to people moving from one part of the country to another to find work, trapping people in low pay and preventing them from advancing” it adds.

The institute’s analysis says that the UK is home to around £7.5 trillion worth of property, with homeowners taxed regressively against values last updated in 1991, and charged stamp duty at rapidly escalating rates. The report proposes instead to abolish stamp duty altogether, covering the cost by raising council tax bills on the most expensive properties in the country.

“This policy is probably the most effective tax cut the Chancellor could go for, boosting growth and improving the fundamentals of the housing market at a stroke” says the organisation.

Although the increased economic activity would likely offset some of the losses in the long-run, the paper suggests revaluing council tax and creating a new band for the most expensive homes as a way of making the move revenue neutral if necessary.

“Stamp duty is the worst tax we’ve got, almost as bad as setting fire to the money instead of raising it in tax. The reason is that Britain’s productivity problem is in large part a mobility problem. People cannot move to where the best jobs for them are because the houses aren’t being built, and that’s made even worse by stamp duty keeping older people in family homes that are too large for them.” says Sam Bowman, executive director of the Adam Smith Institute.

Poll: Should stamp duty be scrapped as part of the upcoming Budget?

PLACE YOUR VOTE BELOW

  • Kit Johnson

    Agree in part but most of this is illogical, why would Stamp Duty prevent older people from Downsizing ? If they sell for £600,000 (probably with no Mortgage) and buy at £250,000 what is the big deal on the Stamp Duty they pay ? Do these "think tanks" have any experience whatsoever of buying and selling houses in England and Wales ?

  • icon

    Probably the most sensible well thought out article I have read on here for a while. Property transactions are down to 40% of their peak in 2007 and whilst we may not wish to get back to quite those heated levels there is no doubt the housing market is stagnating. Increasing numbers of people are living in 'the wrong homes' either by location or size and this is having serious consequences for not only the housing market but the economy in general. One of the great strengths of our economy was the mobility of our workforce and there is no doubt that the very high levels of stamp duty create a significant barrier to moving. A tax which was initially designed to target the rich is hitting ordinary families very hard if they try to move with moving costs of £10,000 - £15,000 being common these days and stamp duty being the single biggest item on that bill. We are rapidly heading to a French style housing market with high taxes and an immobile workforce - and it's easy to see the effect on French industry - is this really what we want in the UK. With Brexit looming we need a vibrant versatile workforce. The government would be well advised to wake up government and take note.

  • Brit Miller

    The stamp duty tax would not be so much of an issue if we didn't have a housing bubble. Only the articially high propped up house prices caused by record low interest rates, QE , funding for lending, help to buy and foriegn property speculators is making the stamp duty expensive. When prices come down to more normal levels and stop being propped up stamp duty will be less ofa hinderance.

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