Ahead of this week’s Budget, the UK’s largest independent estate agent haart has outlined a new proposal to change the way stamp duty is charged which is fairer to the consumer and will help to get the current log jam of housing supply unblocked.
Under the radical proposal, each seller will be able to deduct the value of stamp duty paid by their buyer from the stamp duty they pay on their next home.
One of the major barriers to moving is the high cost of stamp duty which prevents many second steppers moving up the housing ladder. Haart’s proposed stamp duty credit would make it easier for young families to move up, freeing up houses for first time buyers. It would also provide an incentive for older homeowners to downsize (incurring no tax) improving the supply of larger family houses.
While the Treasury would lose a proportion of the £6.9 billion it raises in stamp duty this would be partially recouped by a rise in the number of transactions, increasing the VAT collected from increased purchases of white goods, fixtures and fittings and professional services. There would also be wider economic benefits, for example in improved labour mobility.
Advantages of stamp duty tax credit
– Aids second steppers struggling to afford a larger home for their growing family by reducing their stamp duty bill.
– Downsizers buying a cheaper property than the one they currently own will have their stamp duty fully negated by the credit from their buyer’s stamp duty. This will encourage downsizing and the free up larger properties for families who need to upsize.
– While first time buyers will continue to pay stamp duty, their first property purchase will provide a future stamp duty credit when they decide to move on and sell it.
– Stamp duty would be transformed from a transaction tax, which most economists agree creates economic inefficiency by stifling natural market turnover, into a tax on the incremental value buyers outlay when moving from one property to another.
Paul Smith at haart comments:
“Stamp duty is an unjustified burden on middle income families, especially in London and the South East. It is also preventing the proper functioning of the housing market, exacerbating the shortage of housing supply.
“We are proposing a workable solution which would transform stamp duty from the tax on transactions that it currently is, with all the economic inefficiency this suggests, into a fairer tax based on the incremental increase in the value by which buyers are stepping up in the market. With each buyer in a chain now paying stamp duty, the exchequer is getting many bites from the same cherry – this cannot be justified.
“As downsizers will receive full relief from stamp duty under our proposal, they will be encouraged to buy a property more suited to their situation, leaving larger homes to growing families. These families in turn will find it easier to access the extra space they need as their stamp duty bill will be reduced.
“We estimate that this proposal would reduce the revenue raised by stamp duty land tax by around 50% before factoring in the higher housing turnover it should stimulate. However, this will be in part made up by higher housing turnover, which will increase VAT collected on purchases of new white goods, fixtures and professional services such as legal fees and removal companies. This in turn will provide more jobs and higher income taxes so the benefits are quite wide ranging.”