Will reducing the stamp duty tax for older buyers encourage them to downsize and thereby cut the shortage of homes in the housing market. Is stamp duty even a fair tax? In this article, Personal Loans Now examine whether a tax break for older home buyers could ease the housing crisis.

Tax Break For Older Home Buyers -Personal Loans Now

Learning Highlights
  • The effects of stamp duty on the housing crisis
  • The way in which it is calculated
  • The stamp duty in percentages
  • Older people needing to downsize
  • Whether it is a fair tax
  • The abolition of stamp duty for first-time buyers
  • Conclusions – Tax break for older home buyers

Stamp Duty Blamed for the Housing Shortage UK

The London School of Economics has recently published a report from their housing department that suggests that many retirees would like to downsize to a smaller property but the high stamp tax that they would have to pay on their new home dissuades them from doing so. The report claims that the amount of stamp duty land tax that many pensioners would have to pay if they bought a new home is the reason that there is a shortage of family-sized homes in Britain today. Pensioners don’t want to have to take out an unsecured bad credit loan to pay for these taxes. Therefore, a tax break for older home buyers could significantly help pensioners to downsize.

How is Stamp Duty calculated?

In England, Northern Ireland and Wales, anybody who purchases a house over £125,001 is obliged to pay stamp duty. The tax is calculated at a marginal rate of 2% and rises depending on the price of the property to 12% for homes over the value of £1,500,001 or more. It is believed that the £5,000 tax bill that would need to be paid for the purchase of a £300,000 home is a big deterrent to people downsizing in their retirement. The stamp duty means that people who are comfortable in their homes and do not really need to release the equity in their home are staying put rather than pay more taxes.

What does the amount of stamp duty look like in reality? Our chart allows you to see exactly how much people are paying when they buy a house:

The price of the property Stamp duty rate
Up to £125,000 0%
The portion between £125,001 to £250,000 2%
The portion between £250,001 to £925,000 5%
The portion between £925,001 to £1,500,000 10%
The amount over £1,500,001 12%

Older People Need to Downsize to Free up Properties for Families.

Christine Whitehead, a professor at the London School of Economics, commented on the fact that there is more of a problem in the South East where property prices are higher than other parts of the country. As the house prices are higher more tax is paid. She went on to describe stamp duty as ‘inefficient’ and blaming it for the shortage. The report suggested that stamp duty could be abolished and replaced with higher council taxes and new bands to still generate taxes.

Another interesting point brought to attention by Professor Whitehead was the fact that older homeowners do not carry out as much home maintenance as a younger couple would. The consequence of this is that the quality of many properties on the property market is deteriorating. The report did concede to the fact that even if stamp duty were abolished, many homeowners would still not buy a smaller property to free up theirs for the younger generation as they had a lot of sentimental attachment to their homes.

Tax Break For Older Home Buyers -Personal Loans Now

So what have we learned so far?

  • The report was published by the London School of Economics.
  • It suggests that pensioners are to blame for the housing shortage.
  • Stamp duty is putting them off from downsizing as they do not want to pay the tax.
  • Depending on the value of the property, the tax ranges from 2% to 12% on anything above £125,001
  • The problem is more severe in the South East where house prices and therefore taxes are higher.
  • Less maintenance is carried out by older homeowners resulting in lesser quality housing
  • Abolishing stamp duty would still not sway people who have a sentimental attachment to their homes.
  • Council taxes could be increased to cover the loss of stamp duty tax.

Is Stamp Duty a Fair Tax and Who Pays the Bulk of it?

As to whether or not stamp duty tax is fair, the answer to that must be that it is because everyone has to pay it. Its effectiveness is another story altogether. The government will not be keen to see the back of it as it generates them £11.7 billion a year which is more than inheritance tax and capital gains tax combined.

There has been increasing pressure on the government to make a tax break for older home buyers. Many believe that this tax is also responsible for the shortage of homes for first time buyers. This is because people do not want to move up the property ladder or downsize to avoid paying the tax. Many people will try to avoid taking a long term loan with no guarantor to pay for these taxes and stay in a smaller property. 58% Of the stamp duty tax is paid by middle-priced housing transactions.

Tax Break For Older Home Buyers -Personal Loans Now

The Recent Budget has Abolished Stamp Duty Tax for First Time Buyers

The Chancellor has recently abolished stamp duty for first time buyers on properties under £300,000. The majority of first-time buyers in the UK pay £200,000 for their first home so most would no longer have to pay. Thanks to Help to Buy and other government initiatives, analysts claim that the housing market has never been healthier amongst first-time buyers. It is the older generation who needed the tax break to free up housing.

According to the Council of Mortgage Lenders, the number of first-time buyers between 2011 and 2016 purchasing homes increased by 75%. In contrast to this, the number of second home transactions increased by 14%. The Office for Budget Responsibility warned that this attempt to help first time buyers get on the property ladder could backfire. It may also lead to an increase in the value of the homes of existing owners.

Conclusion – Tax Break For Older Home Buyers

It seems that the Chancellor’s announcement to abolish stamp duty tax for first-time buyers is not addressing the problem that many youngsters have getting on the property ladder. Their problem is saving up for a deposit, while second-time buyers are reluctant to move to avoid paying the tax. Experts suggest that the real problem in the housing crisis lies with the older generation not downsizing. This would help if there would be a tax break for older home buyers. The government gains £11.7 billion a year in taxes from stamp duty. But some think that they could increase council tax and new bands to collect any lost tax revenue.

Tax Break For Older Home Buyers -Personal Loans Now