New research shows potential for serious cuts to Stamp Duty 0

New report shows how Stamp Duty could be simplified and cut without significantly impacting revenue to the Treasury
LSE research shows that cutting Stamp Duty significantly increases the number of housing transactions
Analysis from Walbrook Economics shows how an increase in transactions would mean new tax receipts and mitigate the cost of cutting Stamp Duty Land Tax

The Tax Payers’ Alliance (TPA) believes that Stamp Duty is an unfair double tax and should eventually be abolished. It stops young people buying a home and starting a family; discourages elderly people from downsizing and makes it harder for people to move to new places for new jobs. The TPA recently launched the Stamp Out Stamp Duty campaign calling for a cut in Stamp Duty, but new analysis shows that substantial reforms to ease the burden on home-buyers and limit the economic distortions created by the tax are possible with little or even no impact on overall tax receipts.

Click here to read the full research

Key findings of this research:

Stamp Duty Land Tax raised £6.1bn in 2011/12 with residential property accounting for £4.2bn of that total. This represents 0.8 per cent of the £549bn of taxes raised in that year.
Work by Best and Kleven in their recent paper, ‘Housing market Responses to Transaction Taxes; Evidence From Notches and Stimulus in the UK (June 2013)’, clearly demonstrates a link between Stamp Duty transaction tax rates and valuations and activity levels. Reducing the rate of Stamp Duty by 1 per cent has increased volumes by 20% over a 16 month time frame in the past, with a permanent positive effect in the longer term.
Walbrook Economics estimate around 1.1m jobs are dependent directly and indirectly on the housing market. The fall in housing activity has cost 80,000 construction jobs and 80,000 to 100,000 associated positions in other trades.
They estimate that the decline in transaction volumes has cost the Treasury in excess of £1.3bn p.a. in lost Income Tax and National Insurance. VAT receipts will also be affected by the reduction in economic activity and their estimate is that the decline in transactions has reduced VAT receipts by £1.75bn p.a.
Stamp Duty accounts for less than 30% of the total tax receipts associated with housing transactions overall. Therefore – if higher tax rates reduce transaction volumes – higher receipts from other taxes, as well as more people paying the remaining Stamp Duty rates, will mitigate the loss in revenue when Stamp Duty is cut.

The TPA presents three proposals, all of which are designed to simplify Stamp Duty and reduce the burden on home-buyers:

Proposal 1 – Move to a marginal tax: The slab rate structure of Stamp Duty is unfair and creates enormous distortions. If people only paid each rate on the value above its threshold, rather than paying the highest rate for which their property is liable on the entire value, that would be a substantial tax cut and remove those anomalies. This proposal would particularly benefit those at the middle to low end of the market.
Proposal 2 – Double the thresholds: Stamp Duty currently has 5 rates, between 1% and 7%. If the thresholds were doubled, 77% of all transactions in 2011/12 would have been exempt from any Stamp Duty Land Tax. This proposal would also particularly benefit those at the middle to low end of the market.
Proposal 3 – Halve the rates: Halving Stamp Duty rates would send a clear signal to householders that the Government was determined to encourage home ownership and mobility, and would benefit all home-buyers.

Each of these proposals would provide a substantial economic stimulus at little or no cost to the Exchequer. As the economy is finally showing some signs of recovery, this is an ideal time to act and cut Stamp Duty, before it becomes even more onerous.

Click here to read the full research

Matthew Sinclair, Chief Executive of the TaxPayers’ Alliance, said:

“Stamp Duty is an unfair double tax that stops young people buying a home and starting a family, discourages elderly people from downsizing and makes it harder to move to new places for new jobs. The Government could cut Stamp Duty with a limited impact on the amount of money going into the Treasury’s coffers, as lower taxes would encourage more people to move and therefore increase the number of transactions being taxed. Politicians should seize this golden opportunity to reduce the burden and make things easier for the hundreds of thousands of people looking to buy or sell a home each year.”