British Government has no plans for stamp duty holiday to encourage downsizing
Before the Autumn Budget there were calls for older people in Britain wanting to downsize to be given a stamp duty holiday to encourage them to do so and free up houses for families.
But the Government has now made it clear that it does not back such a move and has no intention of introducing any such tax break.
In written evidence to Parliament’s communities and local government committee on the subject of housing for older people, the Treasury says that providing a tax break for those looking to downsize benefits an already wealthy group of people.
The submission explains that this group is most likely not to be constrained by a lack of cash and already have potentially strong financial incentives to downsize. It also points out that stamp duty is an important source of revenue, raising £11.8 billion in 2016/2017 and helps pay for the essential services the Government provides.
The document also points out that there are many factors, both financial and non-financial that deter people from downsizing, of which Stamp Duty Land Tax (SDLT) makes up a small part.
‘The financial gain that property owners are likely to receive from downsizing will likely outweigh the costs of doing so, particularly as there is no Capital Gains Tax (CGT) on someone’s main residence. Introducing an SDLT relief for those looking to downsize would likely incentivise few genuinely new transactions, and would incur large deadweight cost,’ it adds.
The document says that the financial gain home owners are likely to receive from downsizing can be significant. Savills estimated that the minimum average cash release is £55,000, and the average cash release by downsizing from a four to a two bedroom home is £215,000.
It also address claims that stamp duty is a barrier to downsizing. In the context of the other financial costs, such legal and estate agent fees, moving fees, and non-financial costs such as emotional attachment to the family home, associated with downsizing, the document suggests that it is unlikely that SDLT is the biggest barrier in reality, especially as downsized properties are likely to be smaller and or cheaper than average.
A survey by the International Longevity Centre showed that the most common reason for not downsizing was that the owners could still manage the maintenance of their home with 49% citing this factor while just 13% stated the financial implications of moving, of which SDLT is a small factor.
Furthermore, a survey by the National House Building Council (NHBC) Foundation found that when asked on the importance of downsizing considerations 74% said easier maintenance and 70% reduced running costs and ‘fewer were concerned about equity release, reducing their mortgages, or reducing taxation.
The document also says that for most home owners looking to downsize, the SDLT due on the move-in property will be small and in most cases it will be lower than estate agent’s fees. According to the conveyancing firm MyHomeMove, the average estate agent fee is 1.3%, or £2,900 on the average priced property. For the same house price, the SDLT due is £2,000.
‘Currently, the Government has no plans to introduce an SDLT relief for those looking to downsize,’ it concludes.