Could we REALLY scrap stamp duty? What ditching the hated tax would cost and why it could boost the economy

Stamp duty should be scrapped to improve social mobility, Conservative leader Kemi Badenoch said in her speech to the party conference today. 

Badenoch promised the Tories would get rid of the ‘bad tax’, which is paid by buyers on the purchase price of a property in England and Northern Ireland.

Critics say chunky stamp duty bills, which can run into tens of thousands even for ordinary families, put people off moving home and leave some stuck in unsuitable properties. 

Economists say stamp duty hampers the housing market and the economy, as it discourages people moving for work.

The tax has been meddled with by successive Governments. A notable recent instance came when Rishi Sunak imposed a stamp duty ‘holiday’ to give the property market a shot in the arm just after the Covid-19 pandemic hit.

But the most recent stamp duty change went in the opposite direction, when Chancellor Rachel Reeves opted to hike bills for first-time buyers, home movers and second home buyers. 

Badenoch said we should abandon stamp duty for homeowners altogether. Property experts and economists enthusiastically welcomed the Tory leader’s idea, with one saying it would be the ‘single best reform any government could make’ to the tax system.’

But could cash-strapped Britain really axe stamp duty? We explain how much stamp duty people pay, the revenue the tax adds to the Treasury coffers, and why some say ditching it would pay off.

What would it cost to scrap stamp duty? 

While stamp duty is widely derided as a bad tax by economists, property analysts and much of the population at large, the problem with scrapping it altogether is that it has become an important revenue-raiser. 

According to the Office for Budget Responsibility, property transaction taxes, the majority of which is stamp duty, will have raised £15billion in the financial year 2024-25. 

Stamp duty revenue is expected to rise steadily to £26.5billion by 2029-30, as house prices increase but thresholds remain frozen, while an increased surcharge on buy-to-let and second homeowners raises more.

A Government seeking to scrap stamp duty would need to find a way to replace the money it makes for the Treasury. This could mean raising other taxes, which would be difficult and unpopular.

However, scrapping the tax could bring in money for the Government in other indirect ways. For example, if stamp duty wasn’t an obstacle, a worker may be more likely to relocate for a new job opportunity where they get a pay rise, and therefore pay more in income tax. 

Increased housing transactions are also a major growth engine. Home buyers regularly splash out everything from new furniture to white goods, decorating and renovations. This puts money into the economy and generates revenue from corporation tax and VAT on sales, and income tax and national insurance on tradespeople’s earnings.

Tom Clougherty, executive director of the Institute of Economic Affairs, says abolishing stamp duty is the ‘Single best reform any Government could make to Britain’s tax system.’

He suggests that up to three quarters of the £15billion stamp duty take could be made back in other ways, if the levy was scrapped.  

Clougherty adds: ‘As things stand, this outdated and uneconomic levy is wreaking havoc on our already troubled housing market – by deterring sales and depressing house-building.

‘Indeed, research suggests that the wider social and economic harms are equivalent to three-quarters of the revenue raised – and that’s on top of the loss to the people actually paying the tax.’

The Conservatives cited Institute for Fiscal Studies figures that suggest abolishing stamp duty on people’s primary residences would cost around £4.5billion at present.

However, it said that, based on rumoured Labour plans to change the stamp duty rules, it estimated that the abolition of the tax would cost £9billion in 2029-30, the time of the next election. 

How much stamp duty do people pay?

According to Zoopla, about 83 per cent of buyers now pay stamp duty. 

Between January and August this year, homebuyers paid £9.3bn in stamp duty according to Coventry Building Society’s analysis of the latest HMRC statistics, an almost 21 per cent increase on the £7.7bn paid over the same period last year.

The rise happened because the threshold at which people start to pay stamp duty reduced from £250,000 to £125,000 in March, as Reeves ended a temporary cut put in place in 2022. 

The average stamp duty bill is £4,582, Coventry BS says, compared to £1,340 back in 2014. 

The level of stamp duty charged steps up at certain thresholds. Second home buyers and buy-to-let investors pay a surcharge.

Stamp duty for home movers 

Home movers pay no stamp duty on properties that cost less than £125,000.

On the amount from £125,001 to £250,000 a home buyer pays 2 per cent of the home’s value, on the portion from £250,001 to £925,000 they pay 5 per cent, from £925,001 to £1.5million they pay 10 per cent, above that a 12 per cent rate is charged.

Under the current rules, someone buying a £250,000 home would pay £2,500, someone buying a £450,000 home would pay £12,500, someone buying a £800,000 home would pay £30,000. Someone buying a £1.5million home pays £93,750.

Stamp duty for first-time buyers 

First-time buyers pay nothing on properties up to £300,000, then 5 per cent on the portion from £300,001 to £500,000. If they buy a home costing more than £500,000, they lose their relief and pay the same amount as home movers. 

Stamp duty for second homes and buy-to-let 

Second home buyers, including buy-to-let landlords and those with holiday homes, must pay an extra 5 per cent surcharge on top of the main homeowner rate, including on the zero-rated portion for home buyers. This means their rate starts at 5 per cent, then rises to 7 per cent above £125,001, 10 per cent above £250,001, and so on.

This surcharge was 3 per cent until Labour raised it in the 2024 Budget. 

Someone buying a second home or buy-to-let for £500,000 can now expect to pay £40,000 in stamp duty.

What are the Conservative stamp duty plans? 

The Conservatives have said they would scrap stamp duty on all primary residences, regardless of price. 

However, those buying second homes, residential properties via a company, or those who are not UK residents would still have to pay. 

 It will not apply to Scotland or Wales where separate taxation exists. 

Why is stamp duty considered a bad tax?

Critics argue that a tax bill of thousands of pounds puts people off moving home as often as they would otherwise do. 

This reduces transactions and gums up the property market, meaning people can’t always find the right type of property in their area when they need it and remain ‘stuck’ in unsuitable homes. 

For example, if a big prospective tax bill means a couple in their 50s choose not to downsize from their four-bed house when their children fly the nest, that property then will not become available for a young family in their town looking for a bigger home.

In turn, the young family might remain squeezed in their too-small terrace, which could have been the first step on the ladder for a first-time buyer. 

Would cutting stamp duty boost the economy?

People being able to freely move home is generally considered to be good for the economy. 

First of all, it means that they can relocate for job opportunities, which supports growth. 

It also gives a boost to the whole host of industries which rely on home movers, such as removals firms, conveyancers, carpet fitters and painters and decorators.   

Scrapping stamp duty would also benefit housebuilders, as more people wanting to move would enable them to build and sell more homes. 

Tom Bill, head of UK residential research at the estate agent Knight Frank says: ‘Stamp duty is the one lever politicians can pull that is guaranteed to have an immediate impact on the housing market. 

‘It would inevitably have positive repercussions for the wider economy and increase social mobility.’

However, Bill sounded a note of caution that if the Conservatives looked likely to win the next election, the housing market could temporarily stall because buyers would put moving plans on hold in hope of a stamp duty cut.  

Why do Chancellors meddle with stamp duty?

In recent years, Chancellors have temporarily reduced stamp duty bills at times when the housing market needs a boost.

A recent example came during then-Chancellor Rishi Sunak’s stamp duty holiday. He increased the zero-rated starting threshold during the pandemic, so that between July 2020 and June 2021, buyers paid nothing on the portion of a property up to £500,000. 

This dropped to £250,000 for another three months after that, before returning to the standard rate of £125,000. 

The property market had been frozen at the start of lockdown, and the aim of this cut was to get it going again and increase spending on goods and services. This supported jobs at a time when the economy was floundering and people were losing their livelihoods.  

The plan worked in that it led to a huge surge in the number of people moving home. HMRC data suggests the number of property transactions in the first three months of 2021 was 53 per cent higher than in the same period in 2020, which was before the first lockdown struck.  

But it also led to a surge in house prices. According to Lloyds Bank, the average house prices rose 20.4 per cent between January 2020 and December 2022, up £48,620 to £286,515.

Jennie Hancock, founder and director of West Sussex buying agency Property Acquisitions, says: ‘Stamp duty is such a prohibitive tax, and that was clear for everyone to see when the temporary stamp duty holiday was introduced during Covid. 

‘In over 30 years of working in the housing market, I’ve never witnessed such an instant and dramatic turnaround.’

How did stamp duty become a problem?

Stamp duty has existed in some form since the 1800s, and remained largely unchanged until recently. 

From the 1950s until 1997, most people paid 1 per cent of the property’s value – first on homes above £30,000, and later on homes above £60,000.  

But in 1997, Gordon Brown introduced a new top stamp duty rate targeting the highest-value properties. 

It meant those purchasing properties worth £500,000 or more would pay 2 per cent rather than 1 per cent. 

Brown continued to add new bands to cash in on the buoyant property market and at this point rates were levied on the property’s entire purchase price. 

This unusual ‘slab’ approach differs to today’s threshold system, a more common tax structure, where people pay different rates on different ‘portions’ of their home’s value. 

This stamp duty threshold system was introduced by George Osborne in 2014 to try to overhaul the tax, however, he introduced high rates at the upper end to maintain revenue and not be seen to be favouring the rich.

Despite average house prices rising by 65 per cent, according to Nationwide Building Society, the lower stamp duty threshold has stayed at £125,000 since 2006. This means more people have been dragged into paying the tax as house prices rise. 

Meanwhile, percentages charged have also risen, which has also led to even bigger bills.