Stamp duty, council tax and business rates should all be scrapped and replaced with land value tax (LVT) to make the system fairer for all, latest analysis from Tax Policy Associates suggests.
The hated stamp duty tax made headlines again over the weekend with the Conservatives wanting to abolish it for most first-time buyers and Nigel Farage’s Reform UK pledging to scrap the tax for properties worth less than £750,000.
But Tax Policy Associates says cutting stamp duty increases house prices and previous attempts to provide relief for first-time buyers have all proved to be ineffective.
Dan Neidle, Tax Policy Associates Writing in a blog on the Tax Policy Associates website Founder Dan Neidle adds: “Council tax is also terrible tax – with Buckingham Palace paying less council tax than a semi in Blackpool.
“We can solve both problems together, and tax land in a way that encourages housebuilding and economic growth. But that requires smart thinking and brave politics.”
Neidle says of stamp duty: “It reduces transactions, distorts the housing market, and often stops people moving when they want to.
“Stamp duty makes it harder to borrow from a bank (because the stamp duty is “lost value”).
“All of this means it reduces labour mobility, results in inefficient use of land, and plausibly holds back economic growth. It also makes people miserable.”
The problem, Neidle says, is that like many bad taxes, politicians have become addicted to it.
“SDLT now raises £12bn each year – an amount that’s hard to ignore. And there’s an even worse problem: abolition would inflate property prices.”
Neidle says the link between stamp duty and prices is clear when you look at the impact on house prices of the ‘stamp duty holidays’ in 2021.
He explains: “The spikes in June and September coincide with the ends of the ‘holidays’. A rush of people to take advantage of the discounted stamp duty.
“Of course the ‘holidays’ were temporary – but the chart suggests that there was a permanent upwards adjustment in house prices.”
Council tax is another gripe.
“Council tax is hopeless – working off 1991 valuations, and with a distributional curve that looks upside down,” he says.
“We can see the problem immediately from the Westminster council tax bands.
“The bands cap out at £320k – equivalent to about a £2m property today. So there are two bedroom apartments paying the same council tax as Buckingham Palace.”
The solution, Neidle argues, is to fix council tax and stamp duty at the same time.
He says: “Abolish stamp duty altogether, and change council tax to make it fairer… calibrating that change so that end of stamp duty doesn’t just send house prices soaring.”
“The really courageous answer is to scrap council tax, business rates and stamp duty – that’s about £80bn altogether – and replace them all with “land value tax” (LVT).
“If all we do is abolish stamp duty, most or all of the tax saved by buyers will be eaten up in higher property values. It becomes a £12 billion government handout to sellers.
“There’s no free lunch. But there is an opportunity for a big pro-growth tax reform. It might even be popular.”
Read the full blog HERE.
