A large cut in stamp duty for first-time home buyers is under consideration for the Autumn Budget 2017, set to be published November 22nd. Chancellor of the Exchequer Phillip Hammond has said this move would “aim to help people in their twenties and thirties and restore ‘inter-generational fairness’ to the system”.
Stamp duty can be a large additional cost for people trying to get on the property ladder – particularly in London, as the tax applies to all homes over £125,000. Currently, stamp duty is charged at 2% on the value for homes costing £125,000-£250,000, 5% for homes above £250,001, 10% above £925,001, and 12% above £1.5 million (Gov.uk).
Critics of the stamp duty cite it as a major deterrent to home movers, saying it puts pressure on the UK housing market and stalls high value sales (which subsequently effect the rest of the market). According to the Land Registry, the average stamp duty bill for first-time buyers in London is £11,427 (where the average first-time property value is £428,546). Even for a “starter” flat priced at £250,000, the stamp duty bill is £2,500. Richard Donnell of Hometrack (a property data firm) has said, “If the Budget were to cut Stamp Duty for first time buyers in London to a flat 1%, then our analysis shows this would save first-time buyers in London an estimated £340m per annum out of a total annual Stamp Duty bill across the UK of £8.6bn, representing a 4% reduction in total Stamp Duty receipts.” However, a stamp duty cut without an increase in new homes could potentially increase prices – Treasury studies have cast doubt on the benefits of cuts without an increase in new homes.
Former Tory minister David Willetts has supported Hammond’s proposed measure, saying: “if you are 30 now you are probably earning less than someone who was aged 30 ten years ago. Anything that rebalances and helps young people, I’d be in favour of.” He has also addressed the inevitable increase in tax for older people as a result.
Calls for the removal of stamp duty for older homeowners are growing, with proponents saying this would encourage downsizing to free up homes for younger homeowners. Research from McCarthy & Stone has shown that exempting pensioners from stamp duty would increase their likelihood of moving to smaller homes. This would free up housing and generate market activity worth £186 million.
The Association of Accounting Technicians (AAT) has proposed a “relatively simple” solution of switching liability from buyers to sellers. This would increase mobility across the market. When people move up the property ladder, they pay duty on the lower-priced houses they sell (rather than the ones they buy), as well as help more first-time buyers get onto the ladder initially. The AAT head of public affairs and policy, Phil Hall, reiterated the burden Stamp Duty places on those seeking to move (particularly first-time buyers), as the duty is an additional upfront fee. He states, “this stunts mobility, impacting on employment and productivity as well as reducing the supply of new homes, which adds to the affordability crisis.”
There have also been calls to instead reduce stamp duty for the higher end of the market, in order to generate movement across all levels.