Stamp duty and the housing market

Over the years the stamp duty has been changed to become substantially more progressive in its nature in order to meet political priorities – providing relief for first-time buyers, and surcharges for investors and second home owners. 

But its biggest impact has been its failure to evolve in line with house prices. Thresholds have remained unchanged, resulting in significant fiscal drag over a period of high capital growth.  

Today, the average homeowner trading up the ladder currently faces a bill of £12,400. 30 years ago, there was a single rate of SDLT of 1% on property purchases over £60,000. Even adjusted for inflation, the equivalent figure would have been £1,900.  

All of which means it has become a bigger, more unwelcome, barrier for those looking to move.  

But for those looking after the nation’s coffers it has become a significant revenue raiser, generating over £10bn in receipts in the 2024-25 fiscal year. This makes reform or replacement with an annual tax very challenging for a Treasury with a black hole to fill. 

Whatever the Chancellor decides, it will inevitably create winners and losers, whether it’s high-end homeowners who still have hefty mortgages or long-term owners sitting on valuable assets, but are income poor.

Council Tax reform?

Next up, there’s Council Tax. As the name suggests, it’s a local tax set by councils to fund their budgets – so it’s hardly shocking that rates differ nationwide.

It was ever thus. 

Introduced following the short-lived and wildly unpopular poll tax, every residential property was assigned to one of eight valuation bands, based on the property’s estimated market value as of 1 April 1991. 

There has always been significant geographical variation – but this was seen as a price worth paying for accountability in local government finances. 

However, a tax based on capital values from a time when Chesney Hawkes was at number one, makes those disparities appear much wider. There is no doubt a revaluation and recalibration of council tax bands is overdue.  

But, a universal property tax, which some have mooted, charged at a single rate based on current day values is an entirely different proposition. It would substantially push the tax burden onto London and the South East, spreading the saving thinly and widely, and concentrating additional cost deeply and narrowly.  

Arriving at a precise capital value for every home in the UK would be difficult, while accurately arriving at the underlying land value, would be near impossible. Nice idea in theory, but a nightmare in practice.

More than that, a broad redistribution of liabilities risks piling pressure on the top end of a market already under the cosh. Any ripple effect could further unsettle a fragile housing recovery – just when the government needs stability to hit its housebuilding targets.

Yes, of course, we should look at how to improve property tax. But those who act in haste, repent at leisure.

Further information

Contact Lucian Cook