{"id":12617,"date":"2023-11-22T10:05:11","date_gmt":"2023-11-22T10:05:11","guid":{"rendered":"https:\/\/www.taxpolicy.org.uk\/?p=12617"},"modified":"2023-11-22T10:05:13","modified_gmt":"2023-11-22T10:05:13","slug":"holidays","status":"publish","type":"post","link":"https:\/\/heacham.neidles.com\/2023\/11\/22\/holidays\/","title":{"rendered":"Why stamp duty &#8220;holidays&#8221; are counter-productive"},"content":{"rendered":"\n<p>There&#8217;s speculation today we might see a stamp duty\/SDLT &#8220;holiday&#8221;.<sup class=\"modern-footnotes-footnote \" data-mfn=\"1\" data-mfn-post-scope=\"0000000000002f520000000000000000_12617\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f520000000000000000_12617-1\">1<\/a><\/sup><span id=\"mfn-content-0000000000002f520000000000000000_12617-1\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"1\"><\/span>Apologies to all tax professionals, but I&#8217;m going to call SDLT &#8220;stamp duty&#8221; throughout this article.<sup class=\"modern-footnotes-footnote \" data-mfn=\"2\" data-mfn-post-scope=\"0000000000002f520000000000000000_12617\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f520000000000000000_12617-2\">2<\/a><\/sup><span id=\"mfn-content-0000000000002f520000000000000000_12617-2\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"2\"><\/span> What effect have previous &#8220;holidays&#8221; had? <\/p>\n\n\n\n<p>Here&#8217;s a chart showing changes in the average UK house price. <\/p>\n\n\n\n<figure class=\"wp-block-image size-large is-style-default\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1024\" height=\"575\" src=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/image-22-1024x575.png\" alt=\"\" class=\"wp-image-12618\" srcset=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/image-22-1024x575.png 1024w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/image-22-768x431.png 768w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/image-22.png 1200w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>Guess what triggered the heart attack in the middle?<\/p>\n\n\n\n<p>The big spike in June 2021 just happens to coincide with the last month of the \u00a3500k stamp duty &#8220;holiday&#8221;:<\/p>\n\n\n\n<ul>\n<li>Buy a \u00a3500k property in June 2021: \u00a30 stamp duty. <\/li>\n\n\n\n<li>Buy in July 2021: \u00a312,500. <\/li>\n<\/ul>\n\n\n\n<p>So a nice stamp duty saving equal to 2.5% of the purchase price. But the chart shows a 5% price hike in June 2021, so &#8211; overall &#8211; buyers lost out. And the 2.5% figure is only achieved by properties worth \u00a3500k &#8211; the saving will be smaller for both cheaper and more expensive properties.<\/p>\n\n\n\n<p>Then another price spike before the end of the \u00a3250k nil rate band in October:<\/p>\n\n\n\n<ul>\n<li>Buy a \u00a3500k property in September 2021: \u00a312,500 stamp. <\/li>\n\n\n\n<li>Buy it in October: \u00a315,000. <\/li>\n<\/ul>\n\n\n\n<p>A stamp duty saving worth 0.5% of the house price &#8211; again swallowed by house price increases (and again for most people the average stamp duty saving would be less than 0.5%).<\/p>\n\n\n\n<p>These look like irrational results: buyers would have been better off waiting til the &#8220;holidays&#8221; ended. That&#8217;s not necessarily right. Possibly lower stamp duty but higher house prices benefits buyers (as they can get a mortgage against the house price but not the stamp duty).<\/p>\n\n\n\n<p>But irrationality is also likely a cause here &#8211; the desire to get your purchase in before the end of the holiday created a demand crunch with a dynamic of its own, even though waiting a week could have reduced overall costs.<\/p>\n\n\n\n<p>These two factors, plus the &#8220;stickiness&#8221; of house prices mean that, even when the holiday is over, the increase in house prices appears to stick.<\/p>\n\n\n\n<p>Previous stamp duty holidays had less dramatic effects: there&#8217;s <a href=\"https:\/\/eprints.lse.ac.uk\/59637\/1\/Besley_Incidence%20transaction_2016.pdf\">good evidence<\/a> that the 2008\/9 stamp duty holiday did lead to lower net prices, but 40% of the benefit still went to sellers, not buyers. There&#8217;s <a href=\"https:\/\/lse.ac.uk\/geography-and-environment\/research\/lse-london\/documents\/Reports\/Lessons-from-stamp-duty-holiday-LSE-London-Report-2021.pdf\">some published research<\/a> on the 2021 holiday, but it was completed too soon to catch the September heart attack. I&#8217;m not aware of anything more recent.<\/p>\n\n\n\n<p>So all of this suggests stamp duty holidays are a bad policy, an inefficient way of helping buyers, and perhaps even triggering price rises greater than the tax saving.<\/p>\n\n\n\n<p>A permanent stamp duty change shouldn&#8217;t have so dramatic an effect *if* people believed it was permanent. But a chunk of the benefit would still be swallowed up in higher prices. And from a distributional point of view, stamp duty cuts are a way to hand money to those who already have it.<\/p>\n\n\n\n<p>The bigger picture: residential stamp duty is a terrible tax because it discourages people from moving house when otherwise they&#8217;d want to. I&#8217;d scrap it, and replace the c\u00a310bn of revenue with increased council tax on high-value properties (not hard, when council tax raises \u00a342bn). In principle that would prevent the stamp duty cut from fuelling house price inflation.<\/p>\n\n\n\n<p>But, whatever your view about the future of stamp duty, a &#8220;holiday&#8221; looks like a mistake.<\/p>\n\n\n\n<div style=\"height:100px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p>Photo by <a href=\"https:\/\/unsplash.com\/@davidvives?utm_content=creditCopyText&amp;utm_medium=referral&amp;utm_source=unsplash\">David Vives<\/a> on <a href=\"https:\/\/unsplash.com\/photos\/brown-beach-umbrellas-on-beach-during-daytime-ELf8M_YWRTY?utm_content=creditCopyText&amp;utm_medium=referral&amp;utm_source=unsplash\">Unsplash<\/a><\/p>\n\n\n\n<ul class=\"modern-footnotes-list \"><li><span>1<\/span><div><\/div><\/li><li><span>2<\/span><div><\/div><\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>There&#8217;s speculation today we might see a stamp duty\/SDLT &#8220;holiday&#8221;.Apologies to all tax professionals, but I&#8217;m going to call SDLT &#8220;stamp duty&#8221; throughout this article. What effect have previous &#8220;holidays&#8221; had? Here&#8217;s a chart showing changes in the average UK house price. Guess what triggered the heart attack in the middle? The big spike in [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":12622,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[88],"tags":[115,144],"jetpack_featured_media_url":"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/david-vives-ELf8M_YWRTY-unsplash.jpg","_links":{"self":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/12617"}],"collection":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/comments?post=12617"}],"version-history":[{"count":3,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/12617\/revisions"}],"predecessor-version":[{"id":12621,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/12617\/revisions\/12621"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/media\/12622"}],"wp:attachment":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/media?parent=12617"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/categories?post=12617"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/tags?post=12617"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}