Elderly people could be incentivised to move house if stamp duty land tax (SDLT) came under reform, triggering more housing available for younger families, according to Family Building Society chief executive Mark Bogard.
A report published today by the London School of Economics and The Family Building Society found potential downsizers cannot buy something that costs the same as their original house without spending large amounts of money on stamp duty - but they can stay where they are for free.
It found those aged between 51 and 80 were most likely to say they intended to downsize.
It said older retired people in big family houses who are looking to move to a more manageable property should be incentivised to do so, as it would be beneficial to their own wellbeing as well as improve the efficiency of distribution of the overall housing stock.
The report found respondents were put off by the idea of paying SDLT on a new home, as well the knowledge that the proceeds from selling their own homes might be reduced because of the tax, and the need to pay the 3% surcharge if the first home were not sold in time.
Many therefore continue to live in their homes although it may no longer be appropriate for their needs as they grow older, it said.
SDLT delivers £8bn annually to the treasury. Those with a house value of less than £125,000 don't pay any stamp duty. Those with a house worth £125,001 - £250,000 pay 1%, £250,001 - £925,000 pay 5%, £925,001 - £1,500,000 pay 10% and those with houses worth more than £1,500,001 pay 12%.
'Suffocating' the market
Bogard said SDLT is "suffocating the housing market," adding: "People just don't want to write out a big cheque to HMRC when they just don't have to."
"Without some serious reform of stamp duty and recognition that the Help to Buy scheme does not tackle the issue of helping older home owners downsize, ordinary families will continue to shoulder a heavy tax burden while continuing to face a serious shortage of housing supply," he said.
Chase de Vere Certified financial planner Patrick Connolly said stamp duty was a "big problem" for both older people and younger people, but disagreed that it was the main barrier to older people moving.
"For older people, is it something that stops them downsizing? It's a factor, but it's more the case of older people liking where they live, being accustomed to where they live and having their friends and family close by.
"The real challenge for them is to find somewhere else to live that meets the criteria for their lifestyle, and provides enough excess capital to make it worthwhile for them as well," he said.
Stamp duty to be cut for first time buyers?
Rather than focus on older people, Chancellor Philip Hammond is drawing up plans to help first-time buyers in the Budget next week, in an attempt to signal that the Conservative party understands the resentment felt by people locked out of the housing market, according to the Financial Times.
However, hopes of a new housing policy in the Budget may have been dashed; it claimed ministers have failed to agree on proposals for the government to borrow billions of pounds to finance a big new housing programme.
Connolly continued: "The challenge for the government is that it's a big revenue spinner for them, and in the current economic environment it's difficult to see them doing something that will significantly reduce the amount of revenue they get from it.
"In terms of a solution, it would be to scrap stamp duty entirely. But it's not a realistic solution at the moment."
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