Give older homeowners tax break to ease housing crisis

Published by Adam Williams on 14 November 2017.
Last updated on 14 November 2017

Give older homeowners tax break to ease housing crisis

Reducing the amount of stamp duty tax applied to older home buyers could alleviate the pressure on the UK housing market and free up much-needed housing stock.

A report published by the London School of Economics (LSE) suggests that lowering or eliminating the stamp duty land tax for pensioners who are looking to move into smaller properties would help rebalance the housing market.

Its study found that many retirees say they are keen to downsize, but choose not to do so because of the taxes applied to house purchases.

Stamp duty is applied to all purchases over £125,001 in England, Northern Ireland and Wales, starting at a marginal tax rate of 2% and rising to 12% for properties worth £1,500,001 or more.

This means the purchase of a £300,000 property would incur a £5,000 tax bill, something which may be deterring older homeowners from moving.

Property price Stamp duty rate (England, Northern Ireland and Wales)
Up to £125,000 Zero
The next £125,000 (the portion from £125,001 to £250,000) 2%
The next £675,000 (the portion from £250,001 to £925,000) 5%
The next £575,000 (the portion from £925,001 to £1.5 million) 10%
The remaining amount (the portion above £1.5 million) 12%

 

While properties in Wales are currently charged these rates, stamp duty will be replaced with a land transaction tax from 1 April 2018. Properties in Scotland are subject to a land and buildings transaction tax instead.

‘We need older people to downsize’

Christine Whitehead, professor emeritus in housing economics at the LSE, says the cost of downsizing is a big problem in London and the South East where property prices – and therefore tax bills – are much higher.

“Stamp duty is inefficient, it makes a massive disincentive for certain types of household to move,” she argues. “That reduces flexibility in the housing market and reduces the investment in the housing market.

“If I have five bedrooms, three bathrooms and two people I’m going to stay there until I die, unless something terrible happens. That is true for a very large number of people in London and the South East.”

Professor Whitehead adds that older homeowners typically performed less maintenance on their property than those of working age, meaning the quality of UK housing stock is deteriorating over time.

However, even with reform of stamp duty, the report did acknowledge that many older homeowners are reluctant to downsize because they have a sentimental attachment to the family home.

A more radical proposal considered by the report involves eliminating stamp duty altogether, and introducing higher council tax payments and new bands to cover the lost tax revenue.

Mark Bogard, chief executive of Family Building Society - which funded the report, described the UK’s housing market as a “shambles”.

“Stamp duty is taxing downsizing, it’s taxing people who need an extra bedroom because they’ve had a child, it’s taxing people who want to move for a job,” he says.

“We need older people to downsize to help the next generation.”

Despite these proposals targeting older homeowners, Mr Bogard says he expects the Chancellor Philip Hammond to persevere with his often-criticised first-time buyer and housebuilding schemes.

Any further announcements are expected to be made when Chancellor Philip Hammond delivers his next Budget statement on Wednesday 22 November.

More About

Leave a comment

Could agree more. I am

Could agree more. I am retired and could easily 'downsize' but by the time you take estate agent and stamp duty costs into consideration the potential equity release (you know, the stuff we will need to fund our dementia care) can be minimal. As for 'Help to Buy' tyoe schemes, all they are doing is using tax payers money to fuel the already over inflated housing market. Why can the so-called 'experts' not see the error of their ways? Then agian, they can't see the error of continued QE and low interest rates.

Young adults today are

Young adults today are 'generation rent' because they are prepared as Mr. Prescott advised to "get on their bikes" to find work. Jobs are no longer for life, so they have to be flexible. Repeatedly paying stamp duty to follow work is not financially viable.
Older people having expected to live off savings interest, after years of low growth have eroded their savings. They are property rich but savings poor, as Stamp Duty is expected to be paid up front, many of them lack the ready cash to downsize even if they are prepared to do so. Often there is no profit left after downsizing and paying stamp duty, the only benefit is hopefully smaller energy bills.
But what would the government know about their position?
When the renters are too old to work, they will no longer be able to afford rent and seek housing from the government.
Yet another problem stored up for the future.