Stamp Duty and Inheritance Tax blamed for downsizing slump

A buying agency says stamp duty is one of the biggest obstacles to a healthy housing market driven.

Recoco Property Search says the duty prevents homeowners from downsizing and the lack of any reform of it in the Budget has will create a negative ripple for the market.

Nigel Bishop, founder of Recoco, says: “The UK has a vast number of property owners aged 65 and over who live in properties that are now too large for them and would like to downsize but, due to the current level of SDLT, are reluctant to do so. 

“As a result, buyers and especially families are effectively deprived of a substantial number of family homes that would otherwise be put up for sale.”

Research published by estate agency Savills last month found that there are 1.29m owner occupiers aged 65 and over living in a four-bedroom house. A previous study by wealth manager Hargreaves Lansdown revealed that more than a quarter of homeowners in the UK want to downsize in retirement but 22% haven’t been able to do so because it is too expensive with a further 13% blaming the cost of Stamp Duty. 

“Property values have ballooned over the past decades which means the SDLT rate of 5% to 12% can present a substantial expense that stops many people from selling up and pursuing buying a different property. We believe that a freeze of SDLT for downsizers would encourage this market demographic to finally make that step which will inevitably boost the number of family homes being put up for sale. With the UK suffering from a chronic undersupply of larger family homes, buyers and sellers could really benefit if the levy underwent an adjustment” Bishop adds.

Recoco Property Search found that the majority of people wanting to downsize do it for three key reasons - To live in a more manageable property; Lifestyle changes; or to Release equity to fund retirement or help relatives financially.

Robin Thomas, a search consultant, confirms: “We recently met a couple who have sold their large five-bedroom house in Devon as their children have all flown the nest and are living elsewhere. The sale generated more than £2.5m and the couple intends to release some capital to give to their children whilst using the remaining sum to purchase a smaller property.

“Unless you are a first-time buyer and qualify for the first-time buyer relief, you pay 5% on the portion from £250,001 to £925,000, 10% on the portion from £925,001 to £1.5m and 12% on anything over £1.5m.

“It’s important to remember that if you own a second property such as a buy-to-let investment, it will trigger an additional 3% SDLT surcharge on the purchase of your new home”.

Downsizers are also concerned about the impact of swapping property equity for cash on inheritance tax. As it stands, there is a ‘residence nil rate band’ which allows a married couple to leave only up to £350,000 worth of housing tax-free.

Bishop adds: “Although Jeremy Hunt initially announced that the Inheritance Tax threshold will be locked in until 2028, many home owners would welcome the government to rethink this move. The threshold hasn’t been updated in over two decades whilst property values have increased dramatically during this time. It is therefore outdated and raising the threshold from £325,000 to £500,000 per person or £1m for couples seems long overdue.”