Should the UK abolish Stamp Duty Land Tax?

A new report from the Adam Smith Institute lays out compelling reasons for the abolishment of the Stamp Duty Land Tax (SDLT) in the UK.

There are arguments to support the idea that stamp duty on the sale of property is jamming the housing market, forcing people to stay in houses that are too large for them, and preventing people from moving areas to access the jobs they need. The report states that stamp duty is the most damaging tax in the UK, and that the Chancellor should have scrapping it at the top of the agenda in the run up to November’s budget.

Damaging to housing market

The report says that SDLT is extremely damaging to the UK’s housing market. A similar tax in Australia prompted economists to determine how much it was costing. They found it was costing 75p for every £1 raised. This means SDLT is four times more damaging than income tax, and an incredible eight times more harmful than VAT in terms of each pound raised.

SDLT costs the people of Britain £12 billion every year, which means the tax could be causing as much as £10 billion in losses.

Why does this happen?

SDLT effectively jams the housing market because it prevents people from moving house. There’s no doubt that the lack of new houses is the major cause of the current housing crisis, however, the problems are increased by SDLT preventing existing stock from being efficiently utilised.

For example, the tax penalises older people for moving to a smaller home after their children have left. This in turn prevents larger houses going to new families, which puts added pressure on the already small stock of houses big enough for families.

As well as penalising people for downsizing, SDLT creates a problem for people who want to move across the country to find work. It adds another cost to moving, which many can’t afford, but also traps them in low paid work and stops any advancement.

Escalating rates

The UK has approximately £7.5 trillion worth of property. Homeowners are taxed against values that were updated last in 1991, and they’re charged SDLT at rapidly rising rates.

The report suggests abolishing SDLT altogether, and instead covering the cost by increasing council tax bills on the most expensive property in the UK.

This would be an extremely effective tax cut for the Chancellor to choose in this month’s budget. It would boost growth and fundamentally improve the housing market in one go.

Neutralising revenue

The abolishment of SDLT would increase economic activity which in itself would offset some of the losses over the long term. The paper also suggests revamping council tax and adding in a bran new band for the most expensive homes as a way of recouping revenue if necessary.

Abolishing SDLT could be a first step in focusing on the smaller taxes that are currently damaging the economy. If the government was to make this decision then it could boost housing and labour movement, as well as productivity and economic growth.

Stamp duty has had its day

Head of Research at the Adam Smith Institute, Ben Southwood, says: “Stamp duty is so bad that scrapping it would be both eye-catching and good economic sense. Almost any way of clawing back the money will do less damage than stamp duty does: it’s worse than council tax, income tax, VAT, and even corporation tax.

“Caution is a virtue—but complacency is not—stamp duty has had its day and should be consigned to the dustbin of history!”

– Richard Carr