On Wednesday, at her keynote speech at Conservative Party Conference, Kemi Badenoch pledged to abolish stamp duty. She described it as a “bad tax, an unconservative tax”, and for that reason, “the next Conservative Government will abolish stamp duty on your home”.
This is the single best tax reform that any Government could make to Britain’s tax system.
The UK has a dysfunctional housing market. We have a chronic housing shortage, artificially pushing house prices up and making home ownership an impossible feat for many. House prices were approximately 2-3 times the average salary in the 1990s, and are now more than 10 times, or 12 times in some big cities. The solution to our housing shortage is to build more homes, and that would require radically reforming the planning system.
Making matters worse is the damaging and distortionary property tax system. Stamp duty is Britain’s worst tax. It is a tax on transactions, meaning that fewer people make that transaction. It makes absolutely no sense to tax a house based on how often it changes hands, and in doing so, it prevents homeowners from moving into the homes they actually want to live in.
It penalises people for downsizing and prevents them from relocating around the country for work. It means that fewer transactions are made, and so housing is kept in the hands of people who may not want it as much as another property.
According to Savills, “people used to move house roughly four times after their first purchase. Now, it is more like twice.”
A middle-aged couple living in a family home worth £500,000, whose children have moved out, may wish to downsize. They would be able to free up some equity and spend it on holidays or have a more comfortable retirement. They would also be able to live in a home that they actually want to live in, one that may be easier to clean, and would cost less to heat in the winter.
If the couple wanted to buy a property worth £350,000, they would be required to pay £7,500.
This increased cost means that many do not make that move. Stamp duty prevents the couple from downsizing, and so they are financially worse off in cash terms. They are spending more on energy bills than they need to, and bedrooms they no longer use remain empty. They are potentially hundreds of thousands of pounds worse off, and have to count their pennies as pensioners.
The young couple in their 20s renting a dingy flat down the road can’t afford to move into a family home, and so they make the tough decision to hold off on having children.
This is a story that is quite literally replicated across the country. According to Jackson-Stops, 2.8 million over-55s across England say they would downsize if stamp duty were reduced or removed.
According to analysis by the Centre for Progressive Policy (CPP), the UK’s fertility rate plunged by 18.8 per cent between 2010 and 2022, the biggest proportionate drop in any G7 economy. Interestingly, South Korea has the lowest fertility rate in the world, and a 2024 report by the Korea Research Institute found that housing was the single biggest factor influencing whether couples decide to have children.
Housing misallocation is an enormous problem, and is at its core, a symptom of a broken housing market. Stamp duty gums up the market, and any politician with sense would seek to abolish it.
