Every time the housing market stalls the same thing happens and people call for stimulus, this time: abolish stamp duty.
The logic feels intuitive – reduce a transaction cost and you free up movement, encourage activity, help buyers onto the ladder. Politicians reach for it. Developers champion it. Agents lobby for it.
Stamp duty is a poorly designed tax. It gums up mobility, penalises downsizers, traps people in homes that no longer suit them and stops workers moving to where the jobs are. Reform is overdue.
But reform is a long way from abolition – and the growing political appetite to scrap SDLT entirely, framed as a cure for the affordability crisis, is not just wrong. It is likely to make things considerably worse for the very people it claims to help.
THE EXPERIMENT HAS ALREADY BEEN RUN
In July 2020, the government didn’t abolish stamp duty – but it did run the next best experiment. The SDLT holiday zeroed the tax on properties up to £500,000.
The market’s response was immediate and dramatic: transactions jumped 19% in the year to June 2021. When the holiday ended, completions fell 63% in a single month.
But here is the number that gets quietly omitted from the cheerleading: house prices rose approximately 13% that same year and kept climbing. Buyers saved on tax, but they paid more for the asset. The net result was not affordability. It was inflation.
Academic research is unambiguous on the mechanism. Besley, Meads and Surico studied the 2008–09 stamp duty holiday and found that roughly 40% of the tax saving was captured by sellers through higher prices.
The buyer “saved” £15,000; the market took a significant chunk back. And because property is bought with mortgage debt rather than cash, the inflated price compounds over 25 to 30 years. The one-off “saving” becomes a larger lifetime cost.
THE BUILDER KNOWS EXACTLY WHAT IT’S DOING
The housing development industry understands this dynamic better than most. It is now commonplace for housebuilders to offer to “pay” a buyer’s stamp duty as a purchase incentive, rather than simply reducing the asking price by the equivalent amount. To the uninitiated, this looks like generosity. It is not.
The reason a developer absorbs the stamp duty cost rather than cutting the headline price is straightforward: the headline number matters.
Comparable sales data flows from that number. Future land valuations are anchored to it. The entire pipeline is priced against it.
The developer will take a margin hit to protect the price point, because the alternative, a lower recorded transaction price, carries consequences far beyond the single sale.
What the buyer experiences as a benefit, not having to find the cash to pay the stamp duty is in reality a mechanism for sustaining elevated price levels.
The barrier to entry is lowered just enough to enable the transaction at the existing price. Affordability is not improved. It is repackaged.
HELP TO BUY SHOWED US THE PLAYBOOK
This is not a new story. Help to Buy was built on the same premise: reduce the cash barrier, release demand, stimulate transactions.
What it actually did was provide a government-backed mechanism for buyers to pay more for new-build properties than the market would otherwise have supported.
Housebuilder margins expanded. New-build premiums widened. First-time buyers took on larger debt against inflated assets.
Stamp duty abolition is Help to Buy with the serial numbers filed off. Remove the cash friction, watch demand volume rise, observe prices absorb the released purchasing power.
“The chain of causation is not complicated.”
The chain of causation is not complicated. More qualified buyers enter the market → competition for a fixed supply of homes intensifies → prices are bid higher → sellers and developers capture the windfall → the mortgage principal the buyer carries inflates accordingly.
The young buyer who was supposed to benefit is now carrying a larger 25-year debt on a more expensive asset. The income-to-price gap does not close. It widens.
THE INEQUALITY ENGINE
The distributional consequences are the part of this debate that rarely gets named directly.
Higher transaction volumes and higher prices benefit one group unambiguously: existing property owners who are selling.
The people most damaged by price inflation are those furthest from ownership – typically younger, lower-income, and renting.
A policy that increases transactions while inflating prices is therefore regressive. It transfers value from buyers to sellers, from non-owners to owners, from the young to the asset-rich.
Dressing it up as a first-time buyer benefit is not just analytically wrong – it inverts the actual distributional effect.
WHAT REFORM SHOULD LOOK LIKE
None of this is an argument for keeping SDLT as it is. The current structure is indefensible, slab rates that create cliff edges, a cash-barrier design that disadvantages first-time buyers who cannot mortgage the duty, and a mobility penalty that discourages the kind of natural market movement that a healthy housing stock requires.
The case for structural reform – moving to marginal rates, removing the mobility penalty for downsizers, smoothing the transaction cost across the market is legitimate and worth making. But that is a very different argument from abolition as an affordability fix.
The housing crisis was not created by stamp duty, and it will not be solved by removing it.
It was created by decades of under-supply against growing demand. The answer to that problem is more homes – not easier access to overpriced ones.
Releasing demand into a supply-constrained market doesn’t help buyers.
It just makes the asset more expensive for them to buy.
Anyone selling SDLT abolition as the cure for the affordability crisis has the causality exactly backwards.