UK Banks Urge Labour to Exempt Downsizers from Stamp Duty

UK Finance, representing over 300 firms including 120 mortgage lenders, has proposed a significant change to stamp duty regulations. The organization suggests exempting "last time buyers" aged 55 and over from stamp duty when downsizing, aiming to address the UK's housing shortage and market challenges.

The proposal comes as the UK grapples with a significant housing shortage, with estimates suggesting a need for 300,000 new homes annually. A 2023 government housing survey revealed that approximately four in ten homes across the country are "under occupied," meaning they have empty bedrooms. This situation has persisted despite the UK's housing stock being among the oldest in Europe, with nearly 38% of homes built before 1946.

UK Finance argues that removing stamp duty for downsizers could encourage older homeowners to move into smaller properties, freeing up larger homes for younger families. This approach could potentially help address the housing shortage without solely relying on new construction.

The current stamp duty land tax, introduced in 2003, is charged on home purchases exceeding £250,000, or £425,000 for first-time buyers. Rates increase gradually from 5% to 12% for the most expensive properties. For instance, a £450,000 property in England would incur a £10,000 stamp duty bill, unless purchased by a first-time buyer.

Research by the Centre for Ageing Better found that four million people over 55 would like to move home, but only a fifth anticipated being able to do so due to various practical and psychological reasons. The financial burden of stamp duty is considered a significant deterrent for many potential downsizers.

David Hollingworth of L & C Mortgages commented on the proposal:

"Moving is expensive and just because you're downsizing doesn't mean you're not going to be hit with a large bill. And it often comes at a time when older people may be considering how their retirement finances and income will look."

The UK Finance report also urged the government to maintain the current nil-rate stamp duty bands for first-time buyers in England. These thresholds, raised in Liz Truss's mini-Budget of 2022, are set to expire in March 2025.

In July 2024, Deputy Prime Minister Angela Rayner unveiled plans to build 1.5 million new homes over five years to address the housing shortage. However, UK Finance's proposal suggests that policy changes could complement construction efforts in solving the housing crisis.

As the UK's population aged 65 and over is projected to increase by over 40% in the next two decades, addressing housing needs for different life stages becomes increasingly crucial. The concept of "lifetime homes," developed in the 1990s to create adaptable housing, may gain renewed relevance in this context.

The government's response to UK Finance's proposal remains to be seen, but it has reignited the debate on how to best address the UK's complex housing market challenges.