HM Treasury has ruled out introducing a stamp duty relief for homeowners moving to smaller properties, warning that a new exemption could carry a significant cost to the Exchequer.
The Government confirmed its position in a written response to Frontdoor founder and Chief Executive Officer Joel Hagan (main picture, inset), who had proposed a targeted Stamp Duty Land Tax exemption designed to encourage older homeowners and others to move into smaller homes.
Hagan argues that removing the tax barrier could unlock larger family homes and trigger a chain of transactions further down the housing market.
But in a letter dated 8 September, the Treasury says it has “no plans for a further relief for those looking to downsize”.
TREASURY REJECTS RELIEF
Hagan’s proposed “Rightsizing Relief” would provide a capped SDLT exemption for owner-occupiers moving from a larger property into a smaller home.
The Treasury says most homeowners looking to downsize are likely to have equity in their existing property and already benefit from Private Residence Relief from Capital Gains Tax on their main residence.
It adds that the SDLT payable on the home being purchased will be small for most downsizers and, in many cases, lower than their estate agent’s fees.
The Treasury also points to the importance of SDLT to the public finances, saying it generates around £12bn annually to fund government services.
£180M COUNTERARGUMENT
Hagan disputes the suggestion that a downsizer relief would necessarily cost the Treasury money.
His financial model assumes 100,000 rightsizing moves annually and £625m of SDLT being forgone on those transactions.
However, it estimates that the resulting property chains and associated economic activity could generate £805m, producing a net £180m annual gain to the Exchequer.
The model assumes each additional rightsizing move unlocks around 2.5 onward transactions and discounts half of those on the basis that they would have happened anyway.
“Stamp duty is a tax on moving.”
Hagan says: “The Treasury has costed this statically. Stamp duty is a tax on moving. It raises nothing at all from a house that does not change hands, so any costing that ignores the transactions a relief creates will always produce a large negative number.
“A downsizer does not move alone. They sell a four-bedroom house to a family, who sell a semi to a couple, who sell a flat to a first-time buyer. One exempted purchase at the top generates taxed purchases all the way down. This releases family housing that already exists, without a single planning application or a brick. It gets things moving now which is what the cost of living crisis demands.”
