Housing market experienced a surge following stamp duty reduction, predicts HELEN CRANE, now anticipating a potential decline.
Unleashing the Housing Frenzy: Stamp Duty and Its Toll
Last month sent the housing market into a frenzy as buyers rushed to finalize their purchases before stamp duty hikes on 1st April. Now, the dust has settled and we have the numbers.
According to HMRC, the number of property sales more than doubled, showing an impressive 104% increase from the previous year. It's no surprise this surge is expected to be followed by a slump, as the floodgates have effectively been closed on new buyers.
Already, Nationwide reports a 0.6% drop in house prices come April. Similar market spikes occurred in March, June, and September 2021, as the Government withdrew the stamp duty cut implemented during the pandemic.
Is it fair for the Government to wield this power over the market by tinkering with tax levers? Better to make cheaper rates a permanent fixture or just scrap stamp duty altogether?
No tax is ever loved, but there are solid reasons against sky-high stamp duty. The main argument goes: people should be free to move home whenever they choose, good for the economy. Builders construct more homes when they're confident they'll sell, benefiting numerous industries from home fresheners to furniture shops.
A small stamp duty bill may not seem substantial, but in an already costly housing market where budgets are tight, a tax cut can be the deciding factor.
> Curious about your stamp duty bill? Check out this handy calculator.
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This argument rings especially true for first-time buyers, who are already stretched thin trying to scrape together a deposit. Higher mortgage rates have only added to their struggle. Although they are exempt from stamp duty for homes under £300,000, as average house prices inch closer to that figure, they'll find themselves dragged into the net.
A Labour government, keen on installing 1.5 million new homes, would do well to scrap the tax for first-time buyers. But the tax also discourages downsizers, an essential cog in a healthy housing market as they free up larger homes for growing families.
One reason politicians hesitate to abolish stamp duty is because it appears they're helping middle-class residents of pricey city homes pay less tax. Londoners accounted for a whopping 39% of all stamp duty in 2023-24.
But while house prices have risen, stamp duty thresholds remain unchanged since 2014 - meaning buyers of modest homes across the country are increasingly being sucked in.
Ten years ago, a buyer of the average-priced home (around £194,000) would have paid £1,380 in stamp duty. Today, they'd pay £3,537 - a shocking 156% surge.
In comparison, buyers in France pay 5.8% regardless of price, while Italians only pay 2%. In the US, no stamp duty is levied at all.
Another common gripe is that stamp duty is borne by the buyer but based on the home's value just acquired, essentially pushing the burden onto previous owners' gains.
How much does stamp duty bring in for the Government?
The major hurdle in reforming stamp duty lies with how much the treasury pulls in from it.
For the 2023-24 financial year, it made an impressive £14.8 billion from stamp taxes in England and Northern Ireland. By 2024-25, receipts ballooned to £18.3 billion, boosted by last-minute buying spurred by the stamp duty rise and the introduction of higher stamp duty for landlords and secondary homeowners in October 2024.
The treasury took in more in 2024-25 than 2018-19, the last 'normal' year, bringing in £15.6 billion.
While stamp duty generates less than fuel duty (£24.7 billion of a total £857 billion overall tax take in 2024-25)[8] and more than alcohol duty (£12.7 billion) and inheritance tax (£8.2 billion)[9], these figures are expected to skyrocket to £26.5 billion by the 2029-30 financial year[6].
With such a significant increase on the horizon, perhaps Rachel Reeves might reconsider. By slashing the rates permanently, she could breathe life back into our congested housing market and remove the temptation for future governments to artificially inflate it with these limited tax breaks. After all, the country is eager to step off this stamp duty rollercoaster.
Stamp duty calculator source: UK Government Stamp Duty Land Tax calculator
Other references:
- BBC News
- UK Government
- Property Academy
- Home.co.uk
- RICS
- Office for Budget Responsibility
- The Guardian
- Government Forecast
- HMRC
- Despite the recent rise in taxes, curious buyers can still calculate their stamp duty bill using a handy calculator.
- The surge in property sales in the housing market was an astounding 104% increase from the previous year, but it's expected to be followed by a slump due to higher taxes.
- First-time buyers, who are already struggling to scrape together a deposit, are greatly affected by the higher mortgage rates and tax hikes, such as stamp duty.
- A Labour government might do well to scrap stamp duty for first-time buyers to boost the construction of new homes and the overall economy.
- The treasury generated £18.3 billion from stamp taxes in England and Northern Ireland for the 2024-25 financial year, making it a substantial source of income for the government.
- With such a significant increase in stamp duty receipts expected by 2029-30, it might be worth reconsidering permanent stamp duty rate reductions to stimulate the housing market and reduce artificial inflation.
- The housing market has shown vulnerability to political manipulation through taxes like stamp duty, leading some to question whether it's fair for the government to wield such power over the market.
