In its report assessing options for tax increases at the Autumn Budget, the Institute for Fiscal Studies (IFS) said stamp duty had “gradually increased” over the century and taxing asset transactions impeded on mutually beneficial exchanges.
The report added: “Instead of allowing assets to be sold to those who value them most, stamp duty land tax effectively throws sand in the gears, leading to an inefficient allocation of property.”
The IFS said an elderly couple in a large suburban home and a young family in a small urban flat would probably be better off in each other’s homes, and in an “uninhibited market”, they would be able to exchange. However, because stamp duty adds to the cost of moving, this stops the transaction from happening.
The body said that because stamp duty costs meant people moved home less frequently, this resulted in a drag on growth because people did not relocate for better jobs.
The IFS also said stamp duty on rental housing and commercial property was “similarly damaging”.
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It said stamp duty should not be increased, and in a “well-designed” tax system, there would be no place for it at all. A review led by the IFS also suggested that abolishing stamp duty was “most needed” for the tax system.
The report continued: “Council tax should be turned into a tax proportional to up-to-date property values, set at a rate that would replace the revenue from stamp duty land tax on housing as well as existing council tax revenue.
“The revenue from both business rates and stamp duty land tax on commercial property would then, ideally, come instead from a tax on the value of non-residential land, i.e., excluding the value of the buildings themselves, unlike business rates – feasibility of accurate valuation permitting – so as not to discourage the development and use of property for business purposes.”
It has been rumoured that the Chancellor is considering a single, annual tax on properties worth £500,000 and over to replace stamp duty and council tax.
The IFS said there was a case for raising a bigger share of tax revenue from land and property since this was in fixed supply and could not move, therefore causing less “economic distortion”.
It said the government should prioritise reducing the damage and unfairness caused by current property taxes.
