With Chancellor Rachel Reeves’ Autumn budget fast approaching, one of the most widely discussed property-related rumours circulating the media is the potential upheaval of Stamp Duty Land Tax (SDLT) and its replacement with a new national property tax.
Under this rumoured proposal, SDLT would be replaced by a tax paid by homeowners on the sale of their property, provided it is worth over £500,000, with the amount of tax due based on the value of the property.
While there is no confirmation of the validity of this rumour, it is worth considering how such a change may impact the property market if introduced.
How could First Time Buyers be impacted?
For first-time buyers, the impact of replacing Stamp Duty with a national property tax would most likely be limited. Current Stamp Duty relief already means that those purchasing their first home are not required to pay SDLT provided their home is worth less than £300,000, with a SDLT rate of 5% being applied to homes worth between £300,001 and £500,000.
According to Halifax, the average cost of a first home in the UK in 2024 was £311,034, placing the average first time buyer slightly above the First Time Buyer SDLT nil-rate band, costing £551.70 in Stamp Duty on average.
However, the change may have a positive knock-on effect. Removing SDLT altogether may make it possible for an increased number of first-time buyers to move into higher-value properties which would otherwise have been above the £300,000 relief threshold.
How could those looking to upsize be impacted?
Under the current system, moving to a larger, more valuable property can be expensive, with home movers required to pay Stamp Duty based on the value of their new home.
If this liability was instead due on the sale of their old property, those looking to upsize may find themselves in a more favourable position as they would pay tax on their sale of their smaller, cheaper property rather than on their new, more expensive home.
This change could make upsizing more attainable for those requiring additional space due to change in circumstances, such as a growing family, potentially stimulating more movement in the upper-tiers of the housing market.
How could those looking to downsize be impacted?
On the other hand, this rumoured proposal could create a distinct disadvantage for those looking to downsize, who would face the converse issue.
Those looking to move away from larger family homes into smaller, more manageable properties would face a tax on their higher-value property that they are selling rather than the lower-value property they look to move to.
This may deter some from moving, which may limit the supply of larger properties entering the marketing and reducing the willingness for older homeowners to uproot and downsize.
What are the implications for portfolio landlords?
Portfolio landlords, who hold multiple properties as investments, could be significantly impacted by a national property tax.
Currently, landlords pay standard Stamp Duty and an additional SDLT surcharge at 5% of the whole purchase price, when acquiring additional properties. This cost is typically factored into their long-term investment decisions. However, should sale-based tax be introduced, landlords looking to reduce the size of their portfolio or offload underperforming assets would face a new tax bill each time they sell.
This may discourage many from selling, especially those with higher-value investment properties. As a result, it is possible that fewer investment properties may come onto the market, limiting the availability of new homes for first-time buyers. Long-term, this may lead to a slowdown the fluidity of the property market.
What the rumoured national property tax may mean for the housing market
While it’s important to remember that this proposed change is only a rumour, a national property tax would represent a monumental change in the timing and psychology of the housing market, removing the upfront cost for buyers but introducing fresh financial considerations for sellers.
While the overall impact would depend entirely on how the rumoured proposal would be implemented, it is clear that different subsections of homebuyers would be impacted in very different ways.
Importantly, despite rumours being circulated in the media, the property market, will for the time being at least, continue to operate under the pre-existing SDLT system.
However, these rumours have highlighted the truth that any reform to property taxation has vast consequences, influencing not only the ability for first-time buyers to access the housing ladder, but potentially homeowner mobility and investment behaviours across the entire housing ladder.
