Stamp Duty, one of the UK’s most contentious taxes, has again been a topic of debate. This was sparked by the leader of the opposition, Kemi Badenoch, pledging to scrap the levy for main home purchases under a future Conservative government. And of more immediate concern, rumours abound about Stamp Duty reform at the forthcoming Autumn Budget.
With Income Tax and National Insurance politically difficult to touch, attention is turning to property taxes. One option is introducing a nationwide property levy in place of Stamp Duty. This would see property owners subject to an annual tax on homes valued above £500,000, increasing on those worth £1m or more. The other more recently floated idea is Capital Gains Tax on the sale of the most expensive residential homes.
The thinking behind this potential new system is that it could be viewed as effectively taxing wealth rather than penalising transactions. This is much more politically palatable because, as well as going some way to answer calls to tax the wealthier members of society, Stamp Duty has long been deemed a blunt instrument that distorts the housing market.
People delay or avoid moving altogether to sidestep the cost, even when a move would better suit their needs. Older homeowners may stay in large properties they no longer need, effectively locking in living space that could be better used by those with different needs, younger families finding it hard to upsize, for example.
And it’s not just home-movers – landlords looking to invest in much-needed rental property have faced a growing Stamp Duty bill. The 3% surcharge on second homes and buy-to-let purchases introduced in 2016 was a significant hurdle, with further increases effective from the last Autumn Budget making the tax even more burdensome.
The logic behind the surcharge was to cool investor demand and free up housing stock for first-time buyers. While data published as part of the English Housing Survey reveals that owner-occupation increased from midway through the 2010s, separate analysis acts as fairly compelling evidence of reduced investment in the private rented sector (PRS).
Stamp Duty also discourages movement within the landlord community itself. While the need for rented homes is widespread, it can be more concentrated in some areas. Stamp Duty can lock capital in the wrong places, preventing portfolio rebalancing that could better align supply with tenant demand. The result is a less responsive housing market, one that fails to match people with the homes that suit their changing lives.
To be balanced, it’s worth acknowledging that Stamp Duty offers the Treasury a reliable source of income. It’s easy to collect and relatively difficult to avoid. But the downside is a sluggish, less efficient housing market that doesn’t support labour mobility or long-term growth. It’s not just landlords who are impacted, but the wider economy. When people can’t move for jobs or life events, economic dynamism suffers. And when landlords are deterred from investing, the rental sector contracts, making it harder for workers to live where they’re needed.
Landlords are often misunderstood in public discourse. The vast majority are not speculators but long-term investors providing homes that are essential to our housing system. They are adapting to a regulatory and economic environment that is constantly in a state of flux.
While we support measures to improve standards within the sector we recognise that confidence within the sector is damaged. The ever-present threat of further taxation and unbalanced, poorly implemented regulation, even if only perceived, erodes that confidence further.
We are not expecting Stamp Duty to be removed for second homes or buy-to-let purchases. That would be politically difficult to justify in the current climate. But the negative impact of PRS investment resulting from the tax strongly suggests that the system needs a re-think.
At Paragon, we’ve supported landlords for more than 30 years. We’ve seen the market evolve through economic cycles and policy shifts. Today’s landlords are increasingly professional, often running their portfolios as businesses and playing a central role in meeting the UK’s housing needs. We will continue to advocate for conditions that allow them to invest with confidence, because a thriving private rented sector benefits us all – renters, landlords and the broader economy alike.
Louisa Sedgwick is managing director of mortgages at Paragon Bank
