Stamp duty killing house sales
STAMP duty must be reformed because it is exacerbating the housing crisis by stopping older home owners from downsizing, a Cabinet minister warned last night.
The intervention by a senior Tory, who wished to remain anonymous, came after a report from academics said that stamp duty reduces the rate of house moves by nearly a third and means that large homes were not being freed up for young, growing families.
Ministers, peers and think tanks are now urging Philip Hammond, the Chancellor, to cut the duty – dubbed a “tax on moving” – in his Autumn Budget, amid fears that it is stifling the housing market. The Daily Telegraph has campaigned for the tax to be reviewed.
The Cabinet source said the situation was now so acute it had “a big implication in terms of economic growth”.
A lack of housing for younger Britons is one of the most serious political problems facing the Conservatives and many senior Tory figures believe Theresa May, the Prime Minister, must address the issue if she is to match Labour’s popularity among voters aged under 40.
It was previously assumed that building more homes was the only answer, but it has now emerged that former chancellor George Osborne’s decision to sharply raise stamp duty had a major effect on housing supply.
Millions of pensioners in large homes are unwilling to move to smaller properties because of stamp duty levels – such as £143,000 on a £2million home or £20,000 on a £600,000 property.
The new report, from the London School of Economics (LSE) and the VATT Institute for Economic Research, found that the rate of home moving would rise by 27 per cent if stamp duty was abolished entirely.
Prof Christian Hilber of the LSE, who co-authored the report, said: “The key message of our paper is that stamp duty hampers mobility significantly.
“If you are a young family and you have an additional child, you’ll need an additional room, but the stamp duty is discouraging this kind of move because of the additional cost and lack of available homes to move into.
“In a nutshell, the stamp duty discourages the elderly from downsizing and young expanding families from moving to more adequate larger housing.”
Under the 2014 reforms a longstanding “slab” system – with buyers charged a percentage of the full purchase price as soon as it hits certain thresholds – was scrapped and replaced by a “slice” approach, with different percentage rates applied to each portion of the price.
There is no levy on the first £125,000, then two per cent up to £250,000, five per cent up to £925,000, 10 per cent to £1.5million, and 12 per cent on transactions above that.
Research has shown that home sales are 11 per cent lower than they were before Mr Osborne reformed stamp duty
while an analysis by Oxford Economics also found changes to the stamp duty system led to 1,950 fewer sales of properties worth more than £1m in 2015.
The Cabinet source told The Daily Telegraph it was time Mr Hammond “dealt” with the tax, saying: “It is a big transaction tax and that has a big implication in terms of economic growth – it is stopping people moving.”
The minister said it might be better to address stamp duty after Brexit in March 2019, pending a review into how it impacts on the housing market.
Lord Lawson of Blaby, a former chancellor, said: “The present levels of stamp duty are clearly counterproductive, in terms of housing policy and revenue alike.”
Mark Littlewood, of the Thatcherite think tank the Institute for Economic Affairs, said: “The Government is actively encouraging people, especially the elderly, to remain in large properties when they would prefer to downsize and release a family sized home on to the market.”
Rob Perrins, chief executive of Berkeley Group, one of Britain’s biggest house builders, said: “We believe stamp duty should be halved across the board, and free for those over 60.”
Saga, the consumer group for the elderly, said its research shows up to 1.1million over 65s with one spare bedroom and a further 2.3million with two or more spare rooms, with many feeling prevented from downsizing by the stamp duty system.
An HM Treasury spokesperson said: “We reformed property taxes including stamp duty to help more people get onto the property ladder.
“In addition, we are helping people – including young families – to buy their first homes through policies such as Help to Buy and the Lifetime ISA, and the recent £2.3bn Housing Infrastructure Fund which will free up over 100,000 properties in high demand areas.”