Should stamp duty be abolished in the UK?

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Kimmy Badenoch proposes scrapping one of the most unpopular taxes in the UK, the stamp duty that people pay when they buy their main homes.

The Tory leader claims the move, which would mainly benefit wealthy homeowners and which the Conservatives estimate will cost £9bn, has the support of economists. This is because stamp duty distorts the property market, discouraging people from downsizing or moving for a new job.

But experts say Badenoch’s proposal will need more credible measures to fund it and highlights the need for broader ownership reform. Taxes.

Tim Loenig, a former government adviser, said scrapping stamp duty – while it would boost growth and productivity – would be a “very, very big tax cut for the rich”. He argues that one effect would be to boost house prices, making the main beneficiaries the existing owners of expensive properties in south-east England.

What is the proposal?

The Conservatives have said they will do so if they win the next general election Abolition of stamp duty For primary home purchases in England and Northern Ireland. The tax is currently charged at different rates on different parts of the property price on residential properties costing more than £125,000, unless you are a first-time buyer.

Scotland and Wales have different systems, and the Conservatives said it would be up to the devolved administrations to decide whether to follow suit.

Badenoch said stamp duty is a “bad tax, an unconservative tax” and that abolishing it would “open up a fairer, more ambitious society” while boosting economic activity as more people move. Houses.

Conservative Party officials said the policy would be implemented early in a Conservative government to avoid “stalling” the property market while people wait for the tax to be scrapped.

How much money does stamp duty raise?

The Office for Budget Responsibility expects stamp duty on residential properties to generate revenues of £10.1 billion in 2024-25. This is set to rise to £19.3bn by 2029-30, partly because the threshold at which charges become payable will not rise with inflation, and partly because the Office for Budget Responsibility expects the government’s planning reforms to lead to more house sales.

About half of that amount is a tax paid by people who buy their primary residence, not a second home, the Conservatives say.

The opposition party claims the current Labor government’s plans for stamp duty represent a “hidden tax”, because the £125,000 threshold at which a 2 per cent stamp duty would be paid was set in 2014.

The Conservatives noted that more than half of all homebuyers paid a 5 per cent rate on part of their purchases in 2023-24, compared to just one in four in 2013-14.

Should stamp duty be reformed?

Economists have long argued for the tax to be scrapped because it prevents people from moving house – preventing them from downsizing to smaller properties as they age, making it harder for workers to move to better jobs, and adding to the severe problems the UK faces with housing affordability.

“From an economist’s perspective, stamp duty is certainly among the most harmful and overdue mainstream taxes,” said Thomas Pugh, chief economist at audit firm RSM UK, adding that it reduces productivity and means “spare bedrooms remain unused as families squeeze into homes that are too small.”

“It’s not a well-designed tax. Getting rid of it is a good idea,” said Arun Advani, professor of economics at the University of Warwick and a research fellow at the Institute for Fiscal Studies, adding that eliminating such a tax should ultimately lead to productivity gains through improved job mobility.

Leunig, who backed wider reform of stamp duty and council tax in a paper for the centre-right think tank Onward, also believes scrapping stamp duty would boost economic activity in the short term, with more people spending money on renovations and new furniture as part of moving homes.

Is abolishing stamp duty affordable?

The main argument against the Conservatives’ proposal is its estimated £9bn price tag.

Financing it would require “well-defined spending cuts that you can implement, or an alternative tax through which you can raise money,” Advani said.

But few economists believe the Conservatives can deliver on their promise of £23bn in savings from social care, or succeed in extracting £8bn from cutting the UK civil service to its pre-Brexit size.

A separate concern is that scrapping stamp duty is likely to see house prices rise – to the benefit of wealthier homeowners – as happened during a temporary stamp duty holiday, instigated by then finance minister Rishi Sunak in the wake of the coronavirus lockdowns.

Advani and others argue that broader reform, reforming the current council tax system, could address both of these concerns, as stamp duty revenues could be replaced by higher taxes on owners of expensive properties.

Advani said one of the reasons why successive governments have failed to tackle the archaic system of council tax is the potential to create large numbers of losers who may see the value of their homes decline. Tackling both reforms in tandem could avoid “huge crazy swings” in property prices and “be more manageable”.

Mark von Grunder, director of Benham & Reeves, a real estate brokerage, said Badenoch’s pledge was “nothing more than political rhetoric aimed at winning votes.”

“There is absolutely no chance of the Conservatives abandoning such a large tax amount, especially in these uncertain economic times.”