Could Scrapping Stamp Duty Stimulate the UK Housing Market or Stall It?

Could Scrapping Stamp Duty Revitalize the Property Market?

The recent announcement by Conservative leader Kemi Badenoch to scrap stamp duty on primary residences has sent ripples through the UK housing market. While many have welcomed the prospect of removing this often-loathed tax, analysts warn that the unintended consequences could disrupt more than just tax codes.

Understanding Stamp Duty's Role in Home Transactions

Stamp duty, a tax applied when purchasing a property, is a significant part of the government’s revenue stream. According to estimates, around £13.9 billion was collected in 2024-25, making it one of the UK's most impactful taxes on residential transactions. The proposition to eliminate this tax raises critical questions about how the government might replace such a substantial revenue source and what that means for the overall economy.

Potential Risks: What Happens If This Tax Is Removed?

Property market analyst Tom Bill of Knight Frank suggests that abolishing stamp duty could lead to market stagnation, with potential sellers and buyers postponing their decisions in anticipation of the tax change. "If this popular proposal makes it into law, there’s a high risk that people might choose to hold off transactions until after the elections," he notes, indicating potential slowdowns in the housing market.

The Double-Edged Sword of Home Price Dynamics

While many view scrapping stamp duty as a mechanism to facilitate movement within the housing market, it could have the paradoxical effect of inflating home prices. Former RICS chairman Jeremy Leaf warns that while eliminating this tax could stimulate transaction volumes, it might worsen affordability for first-time buyers. Lucian Cook from Savills calculates that removing stamp duty without a replacement tax could lead to a price increase of around 2.8%, effectively negating any savings realized from avoiding the tax.

The Overlooked Demographics: Who Benefits?

One critical aspect of the debate is the demographic impact of this policy. While first-time buyers currently face no stamp duty on homes under £300,000, abolishing the tax entirely would predominantly benefit those purchasing more expensive properties—particularly in regions like London. Sarah Coles of Hargreaves Lansdown points out that for many first-time buyers, the real barrier remains saving for a sufficient deposit rather than the stamp duty itself.

The National Divide: Regional Disparities in Property Market Impact

The implications of scrapping stamp duty would not be felt equally across the UK. Regions like the North East, where 76% of properties are currently exempt from stamp duty for first-time buyers, would see different market effects compared to London, where only 11% of homes fall into the same category, according to Rightmove data. An uneven impact could exacerbate existing regional inequalities in housing affordability.

The Broader Economic Landscape: Taxation and Public Finances

A significant concern among economists is the potential repercussions for public finances. The Institute for Fiscal Studies suggests that abolishing the tax could create an annual deficit of around £10.5 billion to £11 billion. With such a substantial funding gap, the government may need to look for alternative revenue sources, potentially leading to rises in other tax rates. This uncertainty could add a layer of complexity and risk for policymakers.

Calls for Comprehensive Reform

The consensus among experts is clear: simply removing stamp duty might not be the panacea many hope. Many agree on the need for a comprehensive review of the system, offering alternative solutions that would alleviate the burden on buyers while ensuring essential public services remain funded. "We urgently need a debate on what alternatives can replace this revenue with the least disruption to the market," suggests Leaf, highlighting the importance of a strategic approach.

Final Thoughts: An Opportunity for Future Homeowners?

As the discussion evolves, it is essential for property owners and investors to remain informed and engaged. Understanding the complexities of such policies and their potential ripple effects can empower stakeholders to advocate for meaningful reforms that genuinely benefit the housing market and broader economy. The discussion surrounding stamp duty is not merely about an election promise; it's about the future of homeownership in the UK.

Property owners and investors should consider these factors closely as they navigate the evolving landscape of property finance. Engage with experts, stay updated on fiscal policies, and advocate for reforms that align with your interests.