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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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13 COMMENTS

  1. I can see the problem. Who gets the council tax? It’s um the council. Who gets the stamp duty? The real debate is whether local or national government should get it. In our highly esteemed Nordic cousin countries, a very big chunk of personal tax is municipal and it seems to work well.

  2. It may well make sense to abolish it, but the logic in the argument above makes no such case. Why pick New York? Because it’s the best example or because it makes his case better. Isn’t New York known as a high-tax area? Doesn’t the state there tax income too? In Texas I paid about 8000 dollars a year for property tax, 5%ish of rated value, but there is no state income tax. The transaction tax was negligible but the realtor wants 6%, compared to 1% in the UK. Everything is different except the rule that I MAY just have stated before; The punter always pays.

    ( I’m moving within the UK now. Everything about the English system is crap.)

    • Interesting bit there about realtors’ commissions, very dramatic difference – where I live the commission is 7%, although that is split between 2 realtors and their firms. Do British realtors get paid through some other mechanism in addition to the 1%? It seems impossible that US realtors are getting paid 7 times as much as their British counterparts.

      • @ Esteban
        British Estate Agents (who are the nearest equivalent to US realtors) generally get paid 2% of the value of the transaction. This gives them more than they need, let alone deserve, because UK house prices are ridiculously high thanks to Harold “Will Soon” (and later governments have done zilch to curb house price inflation). My younger son is currently in the process buying a one-bedroom “maisonette” (in American this is a ground-floor apartment) with a small garden in a pleasant but not posh town from which he can commute by train to London, costing $215k.
        I don’t know whether US housebuyers have to pay lawyers fees on top or whether the “realtors” deal with that but the lawyers usually charge a flat fee (still extortionate but unrelated to house price).

  3. rhoda

    I live in Texas.
    We pay getting on for $10K a year in property tax on our des res. And that’s with the amount paid frozen – it doesn’t go up when taxation rates change, or assessed value goes up – because we’re over 65.

    Dunno about you, but $10K a year is, to me, a not-inconsiderable sum. And it doesn’t matter to Texas whether I have income or not.

    I’d far rather have income tax. When I’m working at some fine, overpaid job I can afford it. When I’m calmly retired, they take much less.

  4. rhoda

    I live in Texas.
    We pay getting on for $10K a year in property tax on our des res. And that’s with the amount paid frozen – it doesn’t go up when taxation rates change, or assessed value goes up – because we’re over 65.

    Dunno about you, but $10K a year is, to me, a not-inconsiderable sum. And it doesn’t matter to Texas whether I have income or not.

    I’d far rather have income tax. When I’m working at some fine, overpaid job I can afford it. When I’m calmly retired, they take much less.

    And as to realtors… The value-add of their services these days is much reduced by the existence of the interwebs. True, they act as a selective taxi service, but that should be paid at (say) $50 an hour – it’s kinda unskilled, so that’s fairly generous. But in fact the standard commission here is 6%, split between buyer and seller. Daylight robbery…

  5. I’m coming to the opinion that we should ditch most taxes in favour of income taxes. If nothing else, it would enable people to see how much the public ‘services’ they demand actually cost.

    I would be extremely surprised if US realtors’ service is 6 times better than that offered in the UK.

  6. MC, my realtor in TX was a big blonde in cowboy boots. The one in the UK a little bloke who went to school with no.1 son. Not really six times value difference.

  7. Peeps will still smoke expensive cigarettes so we can tax them a lot.

    This is one of those things which sounds great on paper but doesn’t work in reality, because the higher the price (or the tax) then the greater value that makes them to smugglers and others who sell them through their controlled bodega’s.

    That sort of thing rarely happens with a house.

      • In Colorado the brain surgeons legalised cannabis with the usual bla bla. Job creation, tax revenue, supposed medical benefits, cops can spend their time catching real criminals instead of ageing hippies.

        So far so good.

        The next flash of brain surgery was to legislate that cannabis may only be sold through registered dealers.

        Not so good.

        The result being that legal cannabis, which includes a tax component, is more expensive than the street commodity. I believe that the dealers (being healthy capitalists) endeavour to supply product of a consistently high quality, so value for money it’s not completely off the scale. Howsomever, the ageing hippies with their decades-old supply chains know where to get good shit at half the price of the legal shit.

        This in turn results in an active illegal market in cannabis. The selfsame cops who were catching illegal dope pushers previously, are still catching illegal dope pushers. Except that this time their purpose in life is to protect the profits of the legal pushers. While their salaries are paid by the taxpayer.

        So. The correct thing would have been to legalise cannabis without all the accompanying registered dealer BS and without the accompanying taxation.

        Legalising drugs in general. This is one of those crazy ideas that just doesn’t fly. Dope and LSD are not addictive and are no more harmful than a glass of whisky. Ecstasy/mandy/molly isn’t addictive but taking it more than four or five times a year screws your body up quite badly. Then we move on to the addictive stuff. The problem with addictive drugs is that they are addictive. Very few addicts are able to manage their addiction. Well Keef did by buying medical grade stuff at prices that would ransom an entire royal dynasty. Addicts don’t have good life expectancy. Which is actually a very good thing. After a few years or as much as a decade, their families can go back to something resembling a normal life. If they can endure the living hell of an addict in the family for that long.

  8. > That sort of thing rarely happens with a house.

    While obviously not the same, illegal subletting and squatting comes to mind. Subletting is pretty common amongst the poor in wealthier areas, and amongst students seemlingly everywhere.

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