Today the chancellor announced that the stamp duty land tax (SDLT) threshold for residential properties will be increased from £125,000 to £500,000. SDLT is levied on property transactions above a threshold and introduces another charge on homeowners to the already costly process of moving. That means that for some people who might consider moving, the benefits no longer outweigh the costs. They either decide not to move at all or delay doing so. SDLT is a highly distortionary and economically destructive tax, so the increase will be welcomed by those moving home.
A couple’s location preferences might change, for example, when they retire from work. Living near leisure facilities or family might become relatively more important than living somewhere convenient for where they used to work before they retired. They might also prefer a smaller property if their children have recently moved, particularly if downsizing could help their children buy a property of their own to make space for grandchildren. As well as frustrating the lives of couples like this, SDLT also frustrates the ambitions of those who might otherwise have bought that same property, precisely because it is larger or conveniently located for employment opportunities. In this way, SDLT plays a role in both exacerbating the housing crisis and weakening productivity.
This research estimates the number of property transactions which would have occurred last year if the threshold for stamp duty land tax on residential properties would have been the new £500,000 level and also if it would have been £1 million. In other words, how many more families could move home if we stopped taxing them.
- An SDLT threshold of £500,000 would have resulted in an estimated 216,000 more transactions last year, equivalent to a 27 per cent increase on existing transactions worth over £125,000.
- An SDLT threshold of £1 million would have resulted in an estimated 245,000 more transactions last year, equivalent to a 31 per cent increase on existing transactions worth over £125,000.
- Some of the increase would have been temporary, but an estimated 132,000 transactions a year would be permanent, with a £500,000 threshold, equivalent to a 17 per cent increase.
- An estimated 150,000 transactions a year would be permanent with a £1 million threshold, equivalent to a 19 per cent increase.
- Of the estimated 29,000 more transactions which would have occurred with a £1 million threshold compared to a £500,000 threshold, 20,000 would have been homes worth under £1 million.
- Previous research has shown public opinion strongly supports a £1 million stamp duty threshold, with a 66 per cent approval rate against just 17 per cent in opposition.
- The number of additional families who would be freed to move by a £500,000 threshold in the first year would have been approximately equivalent to the total dwelling stock of Wiltshire, Bradford or the city of Manchester.
- The number of additional families who would be freed to move by a £500,000 threshold on an on-going basis (after the temporary effects had expired) would still have been approximately equivalent to the total dwelling stock of Leicester, Nottingham or Stockport.