A major new report suggests that scrapping Stamp Duty could unleash a wave of house moves and help unlock billions of pounds of housing wealth. Wealth management firm Rathbones says that more than 300,000 additional property transactions could take place every year if the tax were abolished. The firm argues that removing the tax could increase activity in the housing market by more than 25%, potentially giving a major boost to a market that has been held back by the cost of moving.
Government speculation over property taxes
The call comes amid speculation that the Government could revisit property taxes, including Stamp Duty and Council Tax, ahead of the Autumn Budget. Rathbones says ministers should consider not just how much revenue property taxes raise, but whether they are holding back economic growth and preventing people from moving to homes that better suit their needs.
Stamp Duty Land Tax is currently charged on property purchases in England and Northern Ireland above certain thresholds, with different rules applying to first-time buyers and people purchasing additional properties. The tax can add thousands of pounds to the cost of moving home, potentially making people think twice about upsizing, downsizing or relocating.
Impact on homeowners and labour mobility
Jay Lawrence, investment director at Rathbones' Guildford office, said: “Property taxes influence how people behave. We increasingly hear from clients who are staying in homes that no longer meet their needs because moving simply doesn't stack up financially.
“Many older homeowners tell us the costs of downsizing can wipe out much of the financial benefit, while younger families face significant barriers when trying to move into homes that better suit their circumstances.”
He added: “When people are discouraged from moving, the impact extends far beyond the housing market. Labour mobility falls, homes are used less efficiently and opportunities for economic growth can be constrained.”
£5.5 trillion locked up in homes
Rathbones estimates that around 40% of household wealth is held in residential property, amounting to more than £5.5 trillion. The firm argues that much of this wealth is effectively locked up in people's homes and could be put to more productive use if the housing market became more mobile.
It says easier moving could help people release money for investment, business creation, spending and passing wealth between generations. Mr Lawrence said: “Britain has accumulated an extraordinary amount of wealth in housing.
“The question is whether the tax system encourages that wealth to remain locked away or helps create the conditions for some of it to flow more productively through the wider economy.”
He added: “Strong economies depend on people, homes and capital flowing to where they can be used most effectively. Property tax reform will always create winners and losers, but the ultimate test should be whether it supports a more productive and prosperous economy.”
Cambridge housing crisis as a case study
Rathbones points to Cambridge as an example of how soaring property prices can create a brake on economic growth. The city has become a major centre for innovation and technology, but the firm says the cost of housing is making it increasingly difficult for businesses to attract and retain workers.
Mark Winchester, head of Rathbones Cambridge, said: “Cambridge is a good case study. The city is not struggling to attract investment, innovation or entrepreneurial talent. The region accounts for around 15% of the UK's innovation-driven businesses, second only to London. Yet housing has become one of the clearest signs that success is outpacing capacity.”
The average Cambridge home now costs almost £470,000, according to Rathbones, with prices around 12 times average earnings. Mr Winchester said: “For many highly skilled workers, the biggest challenge is no longer finding a job in Cambridge but finding somewhere affordable to live.”
He said entrepreneurs and business owners were increasingly concerned about attracting and retaining staff because of the shortage of affordable housing. “Housing affordability is no longer just a social issue. It is increasingly an economic one, affecting productivity, competitiveness and long-term growth,” he added.
What would scrapping Stamp Duty mean?
For homeowners, abolishing Stamp Duty would remove a potentially significant upfront cost when buying a property. At present, a standard buyer purchasing a single residential property in England or Northern Ireland pays no Stamp Duty on the first £125,000, followed by 2% on the next £125,000 and 5% on the portion between £250,000 and £925,000.
There are separate rules for first-time buyers, who currently pay no Stamp Duty on the first £300,000 of a qualifying purchase and 5% on the portion up to £500,000. Buyers who will own more than one property generally face an additional 5% on top of the standard rates.
Rathbones' argument is that these costs do more than simply raise money for the Treasury - they can change people's decisions about whether to move at all.
