Home Economics Why We Should Abolish Stamp Duty

Why We Should Abolish Stamp Duty

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An interesting study here about the total tax burden upon property. UK annual taxes – presumably without looking at business rates, this is residential property only – on property are fairly low by international standards. Transactions taxes upon property are very high by those international standards. Given that transactions taxes are worse that repeated taxes upon property we have our tax system the wrong way around:

English buyers fork out nearly six times as much tax when they purchase a home compared to those in New York, new data shows.

Though residents of England face much higher initial transaction taxes, annual property tax bills are far lower than other countries. The tax structure therefore discourages people from moving house but is relatively affordable over the long term.


This does not mean English homeowners pay more tax overall, however. Annual property tax bills such as council tax are relatively low versus the international stage.

Kate Everett-Allen, of Knight Frank said: “The tax burden in England is firmly purchase-focused compared with other cities where annual charges are significantly higher.”

In London, the average council tax bill on a home worth £500,000 (assuming it is in Band D) over 10 years would be £15,437. This is a third of the £45,288 bill in New York.

The problem is our old friend deadweight costs of taxation. Whatever it is we get less of it if we tax it. We also do need to have taxation because – remarkable though it might seem given observation of what governments do – we benefit from having government. Perhaps not overall, given the amount of government we get, but a certain minimum is indeed beneficial. So, we need to have tax.

But we should therefore design our tax system so as to gain the needed revenue from those things which cause the least deadweight costs – which lose us the least from the simple imposition of the tax.

We have a few rules about this, the most important of which is to tax things with little price elasticity. Peeps will still smoke expensive cigarettes so we can tax them a lot. Folks won’t take their multivitamins if they’re expensive, so don’t tax those. This is quite apart from whether fags are bad for us, Vitamin D protects against coronavirus and so on. Tax things with low elasticity of demand with respect to price.

The things we lose can be seemingly unrelated. High housing transactions costs increase unemployment for example. This is well founded too, it’s not some made up point. A “too high” owner occupation rate reduces the mobility of the labour force which will lead to people unemployed in one area while another is screaming out for workers. A rental market is necessary so that people can indeed move to where the work is.

An amusement is that moving from council (or “affordable”) housing across local authority boundaries is even more difficult than selling up and buying again. Thus this method of housing provision increases the unemployment rate again.

Clearly, transactions taxes on housing increase this problem – stamp duty increases the unemployment rate.

On the other hand repeated taxation of immovable property is known to be the lowest deadweight form of taxation of all. So, we should replace stamp duty with higher council tax. We will be richer by doing so because we can – even should perhaps – raise the same revenue but at lower cost to us all.

Abolish stamp duty, you know it makes sense.

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expunct

in British English
expunct (ɪkˈspʌŋkt)
VERB (transitive)
1. to delete or erase; blot out; obliterate
2. to wipe out or destroy

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