Should the seller pay the stamp duty?

We seem to talk of little else here than how property should be taxed. Regular readers will know that if it has to be taxed, I favour an inflation-linked capital gains tax on primary homes. But an interesting idea turned up in the Sunday Times this week from John Stevenson, MP for Carlisle.

He reckons that the best way to sort things out would be to shift the burden of stamp duty from the buyer to the seller. This makes sense in all sorts of ways. It would mean that first time buyers would become exempt. “People wanting to get on the property ladder should not be taxed for doing so.”

It would mean that people moving up the ladder would be paying duty on the lower-price house they are selling, not the higher-price one they are buying. And it would mean that the greatest burden fell on those leaving the housing market or downsizing. You might think that this isn’t fair but it is true that those leaving the ladder are generally better able to pay the tax than those joining it.

Stevenson’s scheme also comes with the benefit that it doesn’t change the final amount of tax paid – it could be introduced in a second and work to the benefit of most people in the market while making no change to the finances of the state. I can’t think of any other ideas from an MP that I could say the same about.

That said, I still don’t think it is as good as a primary property capital gains tax (CGT). Why? First because stamp duty is in general a rotten tax, paid regardless of whether you have made any gains or not. If house prices rise and sellers pay the tax it might in part represent a tax on capital gains, but if they do not, it remains yet another double taxation distortion in the economy.

More importantly, regardless of who pays the tax, it remains a huge barrier to labour mobility in the UK. Stevenson appears to assume that all sellers are upsizing or downsizing. But a large number will be moving sideways – for family reasons or work reasons, they’ll be looking for a similar house somewhere else. Having to pay stamp duty will mean – just as it does when charged to the buyers – that doing so penalises them very heavily indeed.