The Case for Stamp Duty Reform in the Spring Budget

Stamp duty reform

In a bid to foster growth-friendly tax cuts, the Institute for Fiscal Studies (IFS) is urging the Chancellor to prioritise a reduction in stamp duty on property and shares in the upcoming Spring Budget. This recommendation comes as a response to the belief that these levies are hindering market fluidity and deterring first-time buyers (FTBs) from entering the property market.

According to Carl Emmerson, the deputy director of the IFS, stamp duties on property and shares should take precedence over income tax or national insurance rate reductions for a tax cut to be truly growth-friendly. Speaking at the IFS presentation of options for the Spring Budget, Emmerson emphasised that cutting these particular stamp duties could stimulate economic growth effectively.

Paul Johnson, the director of the IFS, added weight to this argument by stating that stamp duties on property purchases “gum up the market” and discourage new and younger individuals from participating in the housing 

market. Similarly, he highlighted the inefficiencies created in the market by stamp duties on shares. UK Finance, a banking trade body, has joined the chorus for reform by advocating for the preservation of the £425,000 first-time buyer stamp duty threshold, suggesting an annual review aligned with the house price index to ensure fairness in the housing market.

The backdrop to this call for reform lies in the changes made in the September 2022 mini-Budget by former Chancellor Kwasi Kwarteng, where stamp duty for FTBs was raised permanently to £425,000 from £300,000. However, Jeremy Hunt, in his Autumn Statement two months later, announced the withdrawal of this uplift by the end of March 2025 as part of efforts to stabilise the UK economy.

Analysts caution that while reducing stamp duty may open the market to younger buyers, it carries the risk of driving property prices higher. Danni Hewson, the head of financial analysis at AJ Bell, notes that cutting stamp duty is a powerful but potentially blunt tool, historically associated with increased house prices.

Despite the push for stamp duty reform, the IFS advises caution, suggesting that the Chancellor should hold off on major tax cuts in the upcoming Budget. They highlight that despite a forecasted reduction in UK borrowing for 2023–24, public sector net debt is unlikely to fall significantly in the next five years, indicating a weak economic case for substantial tax cuts.

In conclusion, the debate on stamp duty reform is multifaceted, involving considerations of market accessibility for FTBs, potential impacts on property prices, and the broader economic landscape. As the Spring Budget approaches, the government faces the delicate task of balancing growth-friendly measures with fiscal responsibility.

As we await the Chancellor’s decisions next week, it remains to be seen how stamp duty reform, if implemented, will shape the housing market and impact aspiring homeowners.

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