Saying goodbye to the worst tax in Britain

The old version of stamp duty may well have been worst tax in the UK, says Merryn Somerset Webb.


Stamp duty: net effect will be a small rise in house prices

The old stamp duty might have been the worst tax in the UK and that's saying something. So the changes announced yesterday that removed the old slab system and put in place a more progressive set of rates (George Osborne says 98% of people will benefit) have to be good news.

But will they really push up transactions as much as some commentators seem to think or even save buyers much actual money?

At first glance my answer is no. That's because house prices are driven by what buyers can afford to pay so the less stamp duty they pay, the more they can pay the seller for the house itself.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

As Capital Economics explains, a first-time buyer (FTB) with a total budget of £151,500 made up of £150,000 for the home plus £1,500 for stamp duty will now find they can afford a home for £151,000 plus £520 in stamp duty. But all the FTBs they are competing with will be in the same position, and pretty soon the price of that £150,000 home will be bid up to meet that added demand.

So the market will soon adjust itself upwards slightly, and the buyer will ultimately be no better off instead, it will be the sellers who pocket the gains. This is why people often say that in practice it is the seller, not the buyer, who pays the stamp duty.

The net effect of the fall in stamp duty will be a small rise in house prices (around 1% on most estimates). In the long run, it is existing owners, not new buyers, who benefit. However, while it won't save buyers money, the change might do something for transactions.

At the top end of the generational spectrum it might go a small way to persuading the retired to downsize: large stamp duty bills are off-putting for people needing to create income out of limited capital, so any cut here is a psychological boost.

And at the bottom end, the fact that part of the total cost of a house shifts from being tax to being purchase price makes a difference. That's part psychological, too (tax paid is money lost) but there's also something in the fact that stamp duty has to be paid in cash it can't usually be borrowed as part of your mortgage.

So this change in the short term at least should mean that first-time buyers don't have to get their hands on quite as large an upfront lump sum for stamp and deposit as they did before.

It isn't a huge effect, but I guess that when you are a chancellor doing all you can to keepthe housing show on the road, every little helps.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.