The Debate Over Scraping Stamp Duty in the UK
Conservative leader Kemi Badenoch has called for the removal of stamp duty, arguing that it is a “bad tax” that hinders social mobility. In her speech at the party conference, she emphasized that the tax, which is levied on property purchases in England and Northern Ireland, should be abolished. This proposal has sparked significant discussion among economists, property experts, and the general public.
Critics argue that high stamp duty bills, which can reach tens of thousands of pounds, discourage people from moving home. This can leave individuals stuck in unsuitable properties, limiting their ability to find better housing options. Additionally, stamp duty is seen as a barrier to job mobility, as it discourages people from relocating for work opportunities.
Economists suggest that stamp duty negatively impacts the housing market and the broader economy. It creates a disincentive for movement, which can lead to inefficiencies in the property market. For instance, if someone is hesitant to move due to high costs, it may prevent others from accessing more suitable homes, creating a ripple effect throughout the market.
The tax has been subject to various changes over the years. A notable example was when Rishi Sunak introduced a temporary “stamp duty holiday” during the early stages of the COVID-19 pandemic to stimulate the property market. However, recent changes have gone in the opposite direction, with Chancellor Rachel Reeves increasing stamp duty for first-time buyers, home movers, and second-home buyers.
Badenoch’s call to scrap stamp duty altogether has received support from property experts and economists. One expert described it as the “single best reform any government could make” to the tax system. However, the feasibility of such a move remains questionable, given the significant revenue that stamp duty generates for the Treasury.
The Financial Impact of Scraping Stamp Duty
According to the Office for Budget Responsibility, property transaction taxes, including stamp duty, are expected to raise £15 billion in the 2024-25 financial year. This figure is projected to increase steadily to £26.5 billion by 2029-30, driven by rising house prices and increased surcharges on buy-to-let and second-home buyers.
If the government were to eliminate stamp duty, it would need to find alternative sources of revenue. This could involve raising other taxes, which might be politically challenging and unpopular. However, there are potential indirect benefits. For example, removing stamp duty could encourage more people to relocate for better job opportunities, leading to higher income tax revenues. Increased housing transactions could also boost the economy through spending on furniture, renovations, and other related services.
Tom Clougherty, executive director of the Institute of Economic Affairs, argues that abolishing stamp duty could be the “single best reform any government could make to Britain’s tax system.” He suggests that up to three-quarters of the £15 billion generated by stamp duty could be recouped through other means, such as increased economic activity and tax revenues from new transactions.
However, the Conservatives have estimated that scrapping stamp duty on primary residences would cost around £4.5 billion at present. With the planned tax increases by Rachel Reeves, this cost is expected to rise to £9 billion by 2029-30, factoring in potential gains from increased home movements.
How Much Stamp Duty Do People Pay?
According to Zoopla, about 83% of buyers now pay stamp duty. Between January and August 2024, homebuyers paid £9.3 billion in stamp duty, an increase of 21% compared to the same period in 2023. This rise is attributed to the reduction in the threshold for paying stamp duty from £250,000 to £125,000 in March 2024, following the end of a temporary cut introduced in 2022.
The average stamp duty bill is £4,582, significantly higher than the £1,340 recorded in 2014. The rate increases at different thresholds, with additional charges for second-home buyers and buy-to-let investors.
Current Stamp Duty Rates (Effective 1 April 2025)
| Band | Stamp Duty Land Tax Rate | Additional Rate for Landlords / Second Homes |
|---|---|---|
| £0 – £125,000 | 0% | 5% |
| £125,001 – £250,000 | 2% | 7% |
| £250,001 – £925,000 | 5% | 10% |
| £925,001 – £1.5m | 10% | 15% |
| £1.5m + | 12% | 17% |
No stamp duty is paid on property transactions costing less than £40,000. First-time buyers buying properties above £500,000 lose their relief.
Stamp Duty for Home Movers
Home movers pay no stamp duty on properties costing less than £125,000. On the amount from £125,001 to £250,000, they pay 2% of the home’s value. From £250,001 to £925,000, the rate is 5%, and from £925,001 to £1.5 million, it is 10%. Above £1.5 million, the rate is 12%.
For example:
– A £250,000 home: £2,500
– A £450,000 home: £12,500
– A £800,000 home: £30,000
– A £1.5 million home: £93,750
Stamp Duty for First-Time Buyers
First-time buyers pay nothing on properties up to £300,000, then 5% on the portion from £300,001 to £500,000. If they buy a home costing more than £500,000, they lose their relief and pay the same amount as home movers.
Stamp Duty for Second Homes and Buy-to-Let
Second home buyers, including buy-to-let landlords and those with holiday homes, must pay an extra 5% surcharge on top of the main homeowner rate. This means their rate starts at 5%, rising to 7% above £125,001, 10% above £250,001, and so on.
Conservative Plans for Stamp Duty
The Conservatives have proposed scrapping stamp duty on all primary residences, regardless of price. However, buyers of second homes, residential properties via a company, or non-UK residents would still have to pay. The policy will not apply to Scotland or Wales, where separate taxation systems exist.
Why Is Stamp Duty Considered a Bad Tax?
Critics argue that the high cost of stamp duty discourages people from moving home, reducing transactions and slowing down the property market. This can leave individuals stuck in unsuitable homes, limiting their ability to find better housing options.
For example, a couple in their 50s might choose not to downsize from their four-bedroom house if the stamp duty bill is too high, preventing a young family from accessing that property.
Would Cutting Stamp Duty Boost the Economy?
Allowing people to move freely can support economic growth by enabling job mobility and boosting industries reliant on home movers, such as removals firms, conveyancers, and decorators. Housebuilders could also benefit from increased demand for new homes.
Tom Bill, head of UK residential research at Knight Frank, believes that stamp duty is a powerful lever for influencing the housing market. However, he cautions that if the Conservatives appear likely to win the next election, the housing market could temporarily stall as buyers delay moves in hopes of a stamp duty cut.
Why Do Chancellors Meddle with Stamp Duty?
Chancellors have historically used temporary reductions in stamp duty to stimulate the housing market during downturns. A recent example was Rishi Sunak’s stamp duty holiday during the pandemic, which led to a surge in property transactions but also contributed to rising house prices.
How Did Stamp Duty Become a Problem?
Stamp duty has existed since the 1800s, with rates remaining largely unchanged until the late 20th century. In 1997, Gordon Brown introduced a new top rate targeting high-value properties, leading to increased complexity in the tax structure. George Osborne later introduced a threshold system in 2014, but the lower threshold has remained frozen since 2006, resulting in more people being affected by higher bills.
