The Organisation for Economic Co-operation and Development (OECD), an intergovernmental organisation consisting of 38 member nations focused on promoting economic dynamism and growth, has recently called for the UK government to scrap stamp duty. This call emerges as stamp duty rates are set to return to the previous thresholds made prior to the September 2022 mini budget on April 2025.
In turn, let’s take a closer look at the reasons why the OECD calls for scrapping stamp duty and the ways stamp duty affects the property market.
Why does the OECD Want Stamp Duty Scrapped?
The latest OECD report, published on 11 September 2024, provides a detailed analysis of a range of economic areas that the present government should focus on addressing. Alongside recommending efforts to simplify the tax system, lift fuel duty, and update how council tax is determined for properties is the call to scrap stamp duty.
Informing this call is the report’s identification that ‘stamp duty land tax can discourage people to move for better job prospects or to downsize during retirement, hampering the reallocation of housing in a tight market.’ An additional factor is the OECD’s concern over the UK’s fiscal difficulties between increasing interest payments, rising national debt, and slow economic growth – the latter underlined by the 0.6% growth between April and June.
The OECD encourages the current government to take ‘significant action’ in addressing these economic matters, and abolishing the stamp duty tax is one important step in order to facilitate greater economic activity in the property market. Doing so, the OECD argues, would over time offset the immediate loss of government revenue by fostering favourable conditions to grow the economy.
Such an objective drove Labour’s campaign strategy during the 2024 general election to build a ‘stronger economy in all parts of the country.’ And considering that Labour has emphasised the construction of 1.5 million new properties as a core policy objective, the OECD urges that the present government should also evaluate other aspects to enhance the performance of the property market.
For these reasons, the OECD underlines that scrapping stamp duty would enhance the long-term performance of the property market. It would consequently stimulate economic growth.
How Does Stamp Duty Impact the Property Market?
Germane to the OECD’s concern over stamp duty is the negative impact it will bring if left unaddressed. Industry experts are concerned that the expiry of the current stamp duty rate thresholds will diminish property acquisition incentives, thereby exacerbating the economic problems that the OECD identified in the latest report.
As it currently stands, the stamp rates for properties start at £250,000; for first-time buyers, the rate starts at £425,000. Yet these will drop to £125,000 and £300,000 starting in April 2025. Taking into consideration that the average UK house price as of June 2024 is £288,000, this threshold drop will result in more landlords and consumers being liable to pay stamp duty costs.
Of particular importance are those seeking to purchase property in Southern England, given that 81% of those who pay stamp duty come from that area of the country. Recent research estimates that the April 2025 stamp duty costs would increase a first-time buyer in Camden and Islington an additional £15,000. Moreover, in places where the average first-time buyer would not have previously paid stamp duty, such as Cambridge, Epsom and Ewell, and Windsor and Maidenhead, the additional costs would amount to an average of £6,250.
Zoopla has described this as ‘essentially a tax on moving home in Southern England,’ and critics have been eager to point out that this would dampen property acquisition incentives. Current Conservative leader candidate James Cleverly described this as ‘a bad tax that is stopping too many people getting on the housing ladder.’ On the contrary, only around 5% of first-time buyers looking to acquire property in Northern England and the Midlands are going to be impacted by the lowered stamp duty thresholds.
Nevertheless, these lowered stamp duty thresholds constrain participation in the property market by making property acquisition less desirable, particularly in the most economically vibrant parts of the country. Izabella Lubowiecka, a property researcher at Zoopla, recommends that ‘with just two months to go, those looking to purchase their first home should act this autumn if they are to avoid paying more in stamp duty.’
What to Expect Next?
The OECD offers a compelling justification behind rethinking stamp duty in the property market. It undoubtedly plays an important role in determining the desirability of property acquisition for homebuyers and landlords.
But given that Labour’s overall property strategy is to increase housing supply in the market, and given that Labour seeks to plug the perceived £22 billion in unfunded spending starting in the autumn budget, it is unlikely that the OECD’s call will be fulfilled. Prepare, therefore, to account for stamp duty when thinking about acquiring property.
