Abolishing stamp duty could provide a £139 million boost for the Treasury, new research has found. Permanently extending the UK's stamp duty holiday could lead to up to 37,000 more property transactions each year, claims a report by the Centre for Economics and Business Research (CEBR) and Kensington Mortgages.
It also found that an increase in house prices and consumer spending would be likely to follow, helping to abolish the tax' close to neutral' for the Treasury's coffers.
Together, these factors could be enough to replace the £3.9 billion in tax that the Treasury would lose annually by scrapping stamp duty for properties worth less than £500,000.
This research demonstrates what we all intuitively know – that the stamp duty holiday has been very positive for the economy at a critical time. Aside from updating the threshold to reflect real-world house prices, the maintenance of the £500,000 point could address some structural problems with the UK housing market. It could lead to greater regional mobility – with ancillary trickle-down benefits – as well as also stimulate more downsizing, freeing up family homes and helping to address this vital stock shortage, We believe now is the time to be bold and keep the threshold at its current position, or at least consider amending it to a higher level than the previous £125,000.said Kensington Mortgages CEO, Mark Arnold.
The government has previously ruled out an extension to the tax holiday, which was introduced in March to help deliver stimulation to the UK economy as it was left flailing by the effects of the first lockdown.
However, many observers in real estate point out that there is still time for Chancellor Rishi Sunak to make a U-turn at the Spring Budget before the present tax holiday's deadline on 31st March 2021.
According to CEBR, modestly raising the stamp duty threshold from its current £125,000 marker to just £250,000 could lead to a long-term tax boost of up more than £540 million for the government.
If the government were to extend the stamp duty holiday at its present £500,000 threshold, it might earn up to £139 million extra each year. By getting rid of taxes for the majority of homes in the UK, it is believed that more people would choose to move home.
As a result of this increased activity in the housing market, Kensington Mortgages and CEPR estimate that house prices could rise by an average of up to 1.3%.
The report suggests that the increase in house prices is heavily skewed towards higher-value properties, meaning that the most expensive properties are likely to rise in value more quickly relative to properties in the middle and lower ranges.
Because these higher-value properties would still be taxed under stamp duty, the government would increase the value of its tax revenue from sales on the most expensive homes.
The report also claimed that the money saved on stamp duty by consumers would likely reenter the economy through spending on other purchases and services, totaling up to £1 billion extra being spent in the UK each year.
The tax collected on these purchases, through VAT and other duties, could earn the Treasury a further £561 million in income.
The results are striking, backing up our gut feeling that the Treasury has perhaps been too conservative in its fiscal impact calculations, Stamp duty is a blunt instrument. The spike in activity following the introduction of the changed thresholds tells its own story. It has been altering behaviours for years – discouraging older people from downsizing and making moving across the country for a new job a costly and complicated endeavour, None of that is helpful in an economy trying to re-orientate itself to changed realities and deal with long-standing productivity issues.Said Mark Arnold.
In ordinary circumstances, no stamp duty is charged on up to £125,000 of a property sale.
For the portion of the sale, between £125,000-£250,000, a 2% tax is levied. The tax rate rises to 5% for the part of the sale between £250,000 - £925,000; and rises again to 10% for anything between £925,000 - £1.5 million. Above £1.5 million, stamp duty has a flat rate of 12% on anything remaining.
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