Stamp duty is making the housing crisis worse
Stamp duty is making the housing crisis worse because it is deterring older homeowners from downsizing, it has been claimed.
A report by the London School of Economics and the VATT Institute for Economic Research claimed that the rate of home moving would be 27 per cent higher if the levy was completely abolished.
It identified both younger and older homeowners moving in different directions on the housing ladder as the victims of high stamp duty costs - leaving many to stay put in unsuitable homes that are either too small for a growing family, or too big for pensioners.
This shows how the cost of stamp duty has risen substantially for those buying more expensive homes since banding was first introduced by Gordon Brown in 1997, before that stamp duty was a flat 1 per cent
In addition, many pensioners in larger homes in more expensive areas are unable to move because buyers are put off by stamp duty, which costs £20,000 on a £600,000 home and a huge £143,000 on a £2million property.
Professor Christian Hilber, who co-authored the report, said: 'Stamp duty discourages young expanding families from moving to more adequate, larger housing and it discourages the elderly from downsizing.
'Our analysis suggests that mobility would be 27 per cent higher if stamp duty was abolished or replaced with an annual tax on the value of property.'
He added: 'Stamp duty hinders household mobility substantially - it creates a mismatch and distortions in the housing market.'
The current stamp duty system was ushered in by former Chancellor George Osborne in 2014, who reformed the previous slab-style system where a set percentage was charged on the entire purchase price to a tiered tax, on the basis that this would be a fairer system.
HMRC figures show how the Government has cashed in on stamp duty revenue since 2008. George Osborne reformed it at the end of 2014, but still kept the take high
But the switch meant that upper bands for more expensive properties had to be set at high levels in order to maintain the amount of stamp duty raked in by the government.
Previously buyers paid the percentage above thresholds on the entire purchase price – creating a situation where tax bills rocketed from £2,500 to at least £7,500 when buying a home costing more than £250,000.
A report has found that older people are choosing to stay in their homes and not downsize because of stamp duty, while younger families can't move up the property ladder
Osborne's 2014 reform of stamp duty was the biggest since Gordon Brown ushered in higher rate bands when he became Chancellor in 1997.
Before that point stamp duty had been levied at a flat 1 per cent above a threshold of £60,000.
Brown initially launched a 1.5 per cent charge above £250,000 and and 2 per cent charge above £500,000
By 2000 he had hiked these to 2 per cent and 4 per cent, respectively, as he cashed in on rising house prices and the property boom.
But despite huge house price inflation since 1997, the higher and top stamp duty thresholds didn't move until Osborne's reform.
Current Chancellor Philip Hammond is understood to be under pressure from within the Cabinet to reform the stamp duty system.
'For what it's worth, when I was Chancellor, I halved the rate of stamp duty on house sales, and the revenue increased.'
Mark Littlewood, director general of the Institute for Economic Affairs, told the newspaper that the Chancellor should be seeking to scrap stamp duty altogether.
'It is not a tax on wealthy property owners. It is essentially a tax on moving home,' he said.
'Britain's extortionate housing market is broken enough already without further penalising homeowners by charging them thousands of pounds unless they stay put in their current property.'
The number of people moving home grew after the financial crisis lows in 2008 until 2015 and has fallen back since then. Osborne introduced his stamp duty changes at the end of 2014
He added: '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 onto the market.'
'Given the difficulty young families already face in getting on the housing ladder, it is an absurdity that the government is making it even harder through this outdated and nonsensical tax policy.
Chancellor Philip Hammond (pictured) is understood to be under pressure from within the Cabinet to reform the stamp duty system
'If the Chancellor fails to take action in the budget this autumn, he will be guilty of exacerbating the crisis in our housing market.'
An HM Treasury spokesman said: 'Almost 90 per cent of people want to own a home, but only 63 per cent do. 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.'
Are older people staying in homes too big for them to avoid hefty stamp duty on downsizing?
Our calculator shows how much stamp duty a home mover or first-time buyer would pay when buying their new property.
It shows the cost of stamp duty for your main residence, higher rates apply for those purchasing buy-to-let or additional homes, as shown in the table below.
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August 09, 2017
Sources:` Daily Mail
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