Cut stamp duty for older buyers trying to downsize and raise the total tax haul
Why would anyone downsize? Take Dotty, 75, retired – a Telegraph reader, of course. She lives in the semi-detached house where she raised her children, but doesn’t need so much space now.
She could sell it for £657,865, the average price for these properties in London, according to Rightmove data, and buy a flat, which typically costs £553,498 in the capital.
On top of the lawyer’s and estate agent’s fees, and the other costs associated with moving, Dotty would have to pay a staggering £17,674 in stamp duty – roughly one sixth of her leftover cash. Wouldn’t she be better off staying put?
Dotty and others like her clearly think so. Across England, there are more than a million properties occupied by someone aged 65 or older and with at least two spare bedrooms. And they’re not going anywhere: more than 90pc of the 10.3 million households lived in by someone 55 or older did not move home in the three years up to 2015.
Why not? A survey by Later Life Ambitions, a campaign group that represents a quarter of a million pensioners, found that half of its members said the cost of moving was the main barrier to them upping sticks, with 30pc specifically citing stamp duty.
Policy Exchange, a think tank, has come up with a solution to get around this: reduce stamp duty for older people. In a report published this week it said this would “incentivise a new wave of older homeowners to downsize – which in many cases is simply not worthwhile”. It specifically called on the Government to remove the 2pc stamp duty band, levied on homes priced between £125,000 and £250,000, for older homeowners looking to move. This would save Dotty £2,500.
Policy Exchange is far from the first to suggest a tax exemption for downsizers. Crossbench peer Lord Best, a member of the All Party Parliamentary Group on Housing & Care for Older People, has long argued that it would encourage pensioners to downsize, releasing family housing for younger buyers and stimulating the sluggish property market.
It wouldn’t have to be out of the kindness of the Treasury’s heart; academic research has shown that a 1 percentage point reduction in stamp duty could boost property transactions by 20pc – suggesting that easing the tax burden on downsizers would bring in more stamp duty overall. The Institute of Public Care at Oxford Brookes University worked out that even if transactions rose by just 10pc, the exemption would generate £186m in extra tax revenue per year.
The Government is clearly capable of applying some imagination to stamp duty. A year ago it changed the rules for first-time buyers, removing the levy altogether on properties worth up to £300,000 and taking 5pc on the purchase price between that and £500,000. This saved first-timers up to £5,000 in stamp duty.
Policymakers have also supported younger buyers’ property dreams with schemes such as Help to Buy –
Schemes such as Help to Buy have resulted in more homes for younger buyers at the expense of pensioners