Five ways abolishing stamp duty could change the housing market

Scrapping Stamp Duty: Five Ways Abolishing the Property Tax Could Reshape the UK Housing Market

The prospect of a future Conservative government abolishing Stamp Duty Land Tax (SDLT) has sent ripples through the UK's property sector. Kemi Badenoch, the Business Secretary, has indicated that such a move is on the table, igniting debate about the potential seismic shifts this could trigger. While proponents argue it would unlock the market and boost economic activity, critics raise concerns about affordability and potential inflationary pressures. Let's delve into five key ways abolishing stamp duty could fundamentally alter the landscape of buying and selling homes in Britain.

1. A Surge in Transaction Volumes: The Immediate Impact

Perhaps the most obvious and immediate consequence of abolishing stamp duty would be a significant increase in property transactions. For many buyers, especially those moving up the property ladder or purchasing investment properties, stamp duty represents a substantial upfront cost. Removing this barrier could encourage a wave of pent-up demand to enter the market.

"It's essentially a tax on moving," explains Sarah Davies, a senior property analyst at a leading housing research firm. "For someone selling a family home and buying a slightly larger one, the stamp duty bill can be tens of thousands of pounds. Take that away, and the decision to move becomes much easier, freeing up inventory and allowing people to find homes that better suit their needs."

This could lead to a flurry of activity, particularly in the mid-to-upper end of the market where stamp duty liabilities are highest. First-time buyers, who currently benefit from certain exemptions or lower rates, might see less direct benefit, but the ripple effect of increased movement higher up the ladder could eventually ease pressure on their segment.

2. Potential Price Inflation: The Affordability Conundrum

While increased transactions are a likely outcome, the question of price becomes paramount. If demand surges without a corresponding increase in supply, basic economics dictates that prices will rise. This is a major concern for affordability, particularly for those struggling to get onto the property ladder in the first place.

"The fear is that removing stamp duty simply becomes a subsidy for sellers and developers," warns Mark Jenkins, a housing affordability campaigner. "Buyers, armed with the knowledge they don't have to pay this significant tax, might be willing to bid higher, pushing prices up and potentially widening the affordability gap even further. We could see a short-term boom followed by a period of even greater difficulty for first-time buyers."

The government would need to carefully consider the timing and implementation of such a policy to mitigate this risk. Some economists suggest that a gradual phasing out or accompanying measures to boost housing supply would be crucial. Without them, the dream of homeownership could become even more elusive for many.

3. A Boost for the Wider Economy: Beyond the Property Ladder

The economic arguments for abolishing stamp duty extend beyond the immediate property market. A more fluid housing market can have a positive knock-on effect across various sectors. When people move, they often spend money on renovations, new furniture, and other household goods.

"Think about the supply chains involved in buying and selling a house," notes Dr. Eleanor Vance, an economist specialising in consumer spending. "From solicitors and estate agents to removal companies, interior designers, and retailers of white goods and furniture – all these businesses stand to benefit from a more active property market. It's a significant multiplier effect for the economy."

Furthermore, if stamp duty abolition encourages more people to move to areas with better job opportunities, it could also contribute to labour market flexibility and economic growth. The government might see this as a way to stimulate consumer spending and investment, boosting GDP.

4. Rethinking Government Revenue: Where Does the Money Go?

Stamp duty represents a significant source of revenue for the government. In the 2022-23 financial year, HMRC collected over £11 billion from SDLT. Abolishing it entirely would create a substantial hole in public finances, necessitating either spending cuts or the introduction of new taxes.

"This is the elephant in the room for many policymakers," admits a former Treasury official who wishes to remain anonymous. "While the economic stimulus arguments are compelling, the loss of revenue is a very real consideration. They'd need a credible plan to replace that income, or the public services funded by it would suffer."

Potential replacements could include a broader property tax, adjustments to capital gains tax on property, or even a wealth tax. However, any new tax on property is likely to be politically contentious. The debate will likely centre on whether the economic benefits of abolition outweigh the fiscal cost.

5. A Shift in Investment Strategies: Property as a More Accessible Asset

Abolishing stamp duty could also alter how individuals and institutions view property as an investment. With lower upfront costs, property might become a more attractive asset class for a wider range of investors, including smaller, individual investors who might have been deterred by the stamp duty burden on multiple purchases.

"It could democratise property investment to some extent," suggests James O'Connell, a financial advisor. "Someone looking to build a small portfolio of buy-to-let properties would find it significantly cheaper to acquire those assets. This could lead to increased competition for properties, but also potentially a more diversified ownership base."

However, this could also attract more speculative investment, further exacerbating affordability issues if not managed carefully. The government might need to consider measures to curb excessive speculation if this becomes a significant concern.

The proposal to abolish stamp duty is undoubtedly a bold one, with the potential to fundamentally reshape the UK's housing market. While the allure of a more fluid and dynamic property sector is strong, the implications for affordability and government revenue are complex and cannot be ignored. As the political debate unfolds, it will be crucial to weigh these competing factors to ensure any changes benefit the wider population, not just a select few.