The increase of the threshold on stamp duty is most likely to encourage movement in cities in the Greater South East as well as giving homeowners in this area the greatest benefit.
In the Summer Statement, Chancellor Rishi Sunak announced another “holiday”, this time for stamp duty. He raised the threshold past which homeowners pay stamp duty to £500,000 up until the end of March next year. This will encourage people to move house across the country, but will have a larger effect in the Greater South East. House prices will also be pushed up for already wealthy homeowners living in these cities in the South.
Houses sold for between £125,000 and £500,000 will have stamp duty reduced to zero. Houses above this level will see a reduction in their tax bill, while houses sold for below the previous threshold of £125,000 will continue to pay no stamp duty. In 2019, around 155,500 of the 911,500 homes sold fell into this last category and so would have seen no change in the number of transactions from the increase of the stamp duty threshold.
A higher share of homes fall into this bracket in cities in the North of England and the Midlands. In Burnley, 2285 of the 3276 homes sold in 2019 (70 per cent) would have not been impacted by the change to the threshold. In a further seven cities, all of which are in the North of England or the Midlands, one out of every two homes sold were below the previous threshold and so would not be impacted by the Chancellor’s “holiday”.
This is compared to homes sold in the Greater South East where a majority of sales (more than 80 per cent in every city) would have seen the amount of stamp duty they pay reduced. Reading, Cambridge and London are examples of this – in each of these cities, more than 99 per cent of homes sold were above £125,000 and so would have been impacted by the reduction in stamp duty.
Source: Land Registry, Market Trend Data, Price Paid, 2019 Data
Those moving home in cities in the Greater South East are also more likely to be spending over £500,000 and are therefore more likely to receive the maximum reduction in stamp duty of £15,000. In both London and Cambridge, more than a third of all homes sold in 2019 would have been able to claim this maximum reduction in stamp duty. In contrast, less than 1 per cent of sales in 11 cities in the North of England and the Midlands would have seen the £15,000 reduction in stamp duty. The total number of houses that would have been able to claim the maximum reduction in these 11 Northern cities was less than in Cambridge alone, despite there being almost 40 times as many houses sold in total.
Source: Land Registry, Market Trend Data, Price Paid, 2019 Data
The changes to the threshold for stamp duty are likely to boost transactions in the short term as intended by the Chancellor. However, evidence from the 2008-09 stamp duty holiday in the UK showed that although the holiday boosted transactions by around 8 per cent, this effect was largely reversed when the policy was withdrawn. In addition to this, although stamp duty is only paid by the buyer, a portion of the savings are passed through to the seller meaning that the tax break is likely to result in an increase in house prices.
This means that in places where the savings from stamp duty cuts are the largest, the price increases are also likely to be the largest. Figure 3 plots the average saving per sale, showing that savings are likely to be much higher in the Greater South East than elsewhere and prices here will be pushed up the most.
Source: Land Registry, Market Trend Data, Price Paid, 2019 Data
In Hull, the average saving would have been £379 whereas in Cambridge this saving would have been more than 27 times larger at £10,432.
The stamp duty holiday is intended to support the economy by getting people moving again.
If at least some of these savings pass through to the seller as increases in price, the Chancellor’s tax break will provide a windfall for the already wealthier homeowners in the Greater South East.
Stamp duty is an inefficient tax as argued in the Mirrlees Review and alternatives such as a capital gains tax would be an improvement. Nevertheless, this inequality in housing wealth across the country emerges from the planning system’s rationing of homes in the most high demand and expensive cities. Fixing this underlying problem, as argued in our new proposal for a flexible zoning system, is key to ending the housing crisis and reducing wealth inequality for homeowners across the country.
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