A modest proposal on stamp duty

We've seen one idea that might just persuade the Treasury to get rid of stamp duty.

Does anyone like stamp duty, except perhaps the Treasury? Even the Treasury might be thinking that it would collect more cash overall if some rates were lower.

On the other hand, England also has among the lowest annual residential property taxes in the world. Council tax is a tax on the resident, not the owner, so arguably we don't have a real annual residential property tax at all.

Why not replace stamp duty (SDLT) with a new annual property tax, based on the market value of the land (ideally, or the value of the property), that starts only on the next transfer of the property, when stamp duty would have been paid? That's the way land registration was brought in: gradually, one transfer at a time.

Why hasn't stamp duty been replaced? Well, even if it makes the housing market a disaster, it's a good tax for the Treasury. It raises money in a very clear way, and it's pretty enforceable. It's been increased to this level because that has been the policy of both large parties at one time or another.

Politicians on the right tend not to want to replace stamp duty with a mansion tax or a land value tax because they don't want to force the elderly in large houses out of their homes.

This solves that problem.

No-one can be forced out of their home by the new tax, because it will only kick in when they want to transfer the property anyway.

Most buyers pay as much as they can based on the affordability of monthly mortgage payments and the cash they have for the deposit. Because stamp duty comes out of the cash for the deposit, it directly affects the price received by the seller. The same is true for buyers with no mortgage.

On the other hand, a new property tax is payable over time, and could have much less effect on the price received by the seller.

The present value (to the Treasury) of an annual property tax indexed to the land or property value could be far higher than current value of stamp duty. Cash in the future is worth nearly as much to the Treasury as cash today, because of the very low interest rates it pays to borrow via government bonds.

At the right level, the new tax could result in the seller getting a higher price and the buyer paying less cash, but the tax being worth more to the Treasury in the long run. That's possible because the Treasury pays lower interest rates than buyers.

More sensible property taxes might also help the housing market adjust a little better, although it won't get rid of the fundamental shortage of homes in the right places.

Wouldn't it be unfair to have some homes subject to property tax and some not? Remember it's replacing a stamp duty that they would have paid anyway, and all properties will move onto the new tax over time, when they get sold or otherwise transferred.

Purist property tax reformers might say they want a full land tax tomorrow. We'll be happy to take bets about whether that's going to happen. In the meantime, this seems like a step in the right direction?