Liz Truss and her new Chancellor Kwasi Kwarteng are currently drawing up plans to abolish stamp duty amongst a string of tax cuts according to The Times.
The plan to slash stamp duty is part of a wider plan to help kickstart the economy, alongside axing plans to raise corporation tax, reverse the hike in National Insurance Tax and end a cap on bankers’ bonuses.
The abolishment of stamp duty was reportedly said to be the “rabbit out of the hat” moment of the mini-budget. This news comes at the same time as the Bank of England was expected to announce a rise in interest rates on Thursday in an effort to try and curb spiralling inflation.
Subscribe To Our Newsletter
What Is Stamp Duty?
Stamp duty is a tax that must be paid when you purchase a property or land over a certain price in England or Northern Ireland. Stamp duty is payable when you buy a freehold property, a new or existing leasehold, property through a shared ownership scheme or if a property is transferred to you in exchange for payment.
Not everyone will have to pay stamp duty tax. If you and whoever you are buying a house with are first-time buyers and the property is under £500,000 you may be able to pay less or no stamp duty tax.
In accordance with current regulations, stamp duty is paid on the first £125,000 of any property purchase and then rises to 2% between £125,001 and £250,000, 5% between £250,001 and £925,000, 10% between £295,001 and £1.5 million and then 12% above £1.5 million.
There have currently been no details released by the government on exactly how much these cuts will cost but it is estimated that combined with the flurry of other tax cuts it could cost around £30 billion.
Trickle Down Economics
The foreign minister Gillian Keegan has defended the Prime Ministers’ plans of cutting taxes to try and boost growth by saying “You cannot call what we’ve done trickle-down economics. You know, we’ve just put a massive package in place which the chancellor will outline the cost of that and how we are going to deal with that.”
She went on to say “But it is massive, the package we put in place to make sure we support people at this time. So, if you look at the definition of trickle-down economics, that definitely does not fit it. There’s no way you could describe our approach as trickle down”.
This defence came after the approach was criticised by not only the opposing parties but also by the US president, Joe Biden. President Biden tweeted “I am sick and tired of trickle-down economics. It has never worked” as the Prime Minister was addressing reporters on a trip to New York.
Trickle-down economics is a term used to describe policies that favours tax breaks in order to stimulate growth in the economy, though faces a lot of criticism as it is often viewed as a way of making the rich richer without much of a knock-on effect.
The Prime Minister has admitted that the benefits would favour the wealthy but has insisted that this is not unfair.
“What we know is people on higher incomes generally pay more tax so when you reduce taxes there is often a disproportionate benefit because those people are paying more taxes in the first place.”
What Will This Mean For The Housing Market?
Experts are warning that the cuts to stamp duty will price out first-time buyers and instead stoke an inflation bubble that will only benefit wealthier buyers.
Lewis Shaw, the founder of Shaw Financial Services said that “If someone asked me how to drive an already overheated housing market into dangerous bubble territory and make things worse for everyone, this policy would be it”.
We spoke to Jonathan Christie and Karl McArdle, co-CEOs of The Property Buying Company about what they think the abolishment of stamp duty will mean for the housing market.
Mr McArdle explained “Doing something to boost the housing market is defiantly a positive, especially after the slowdown in the market that we have seen over the last two months.”
“The abolishment of stamp duty will have to be done quickly and without delay or else it will stall current transactions.”
He continued to say “I think that anything that will help to boost the housing market is a positive thing. It worked last time and whilst we will not see a surge as big as the last time, we will see more equity in the market.”
Mr Christie told us that “Many people have been calling for an end to stamp duty tax for years as it discourages mobility. Stamp duty is paid by buyers rather than sellers, which in turn makes people less likely to want to move as they know that after they have gone through the stress of buying a new home, they have stamp duty tax waiting at the end of the sale for them.”
He continued “By cutting stamp duty tax, it could potentially help to offset a slowdown in the housing market. This abolishment can help ease some of the financial squeezes on homebuyers as rising interest rates paired with the cost of borrowing, which is expected to hit 4.5% next year, has been taking its toll on the market.”
He went on to say “However unless the cutting of stamp duty is paired with wider reforms and efforts to increase housing supply, it has the potential to lead to further inflation and do very little for homebuyers.”