Slaying the beast of stamp duty will finally unclog the housing market
Callooh! Callay! For Chancellor Rishi Sunak has finally slain that manxome foe, stamp duty. Or, at the very least, dulled its eyes of flame. For properties purchased until March 31, the threshold at which stamp duty is payable has been increased from £125,000 to £500,000, saving buyers up to £15,000.
Above this threshold, stamp duty will be charged at the normal rates of 5pc on the value of the property between £500,001 and £925,000, 10pc on the band between this and £1.5m, and 12pc on anything higher.
The new rates will help home movers across the spectrum, and should reinvigorate a property market that has become stuck in the mud. A change to the dreaded, punitive tax has long been necessary. Opponents say it clogs up the market by stopping people moving to take up new jobs, preventing growing families from buying larger homes and keeping older couples in houses that are too big for them.
Reducing the stamp duty bill means people will be more likely to move when they want or need to – increasing the number of transactions and freeing up housing supply for first-time buyers.
This stimulus is desperately needed: residential property transactions in May were half the number recorded in the same month last year.
Academic research has shown that a one percentage point reduction in stamp duty could boost property transactions by 20pc. Market data has delivered the same result.
After first-time buyers were freed from stamp duty in 2017 – with a full exemption up to £300,000 and 5pc payable up to £500,000 – they overtook the number of existing homeowners moving house for the first time since 1995. The Chancellor has now gone one better by offering the exemption to all buyers, because there is little point giving one group of buyers a leg up when the market depends on all being able to move along the ladder. Could his changes have gone further? Always.
First-time buyers, who previously had a monopoly on tax breaks under £500,000, will now face stiffer competition from wealthier downsizers and buy-to-let landlords who will not face the same mortgage restrictions from lenders.
Sunak stopped short of delivering on Boris Johnson’s desire to lower the top rate from 12pc to 7pc – meaning second steppers buying larger family homes will still pay high rates of 10pc and 12pc above £925,000.
Downsizers who wish to take advantage of the holiday may be unable to plan and undertake such a large life milestone by the end of March.
But the change means nine out of 10 buyers will no longer pay stamp duty – and for those who will, a saving of £15,000 is not to be sniffed at. O frabjous day, indeed.