Why would anyone downsize? For example, if you are 70, retired, and living in a large detached house in Cambridge where you raised your children, but you don’t need so much space now, you could sell it and buy a smaller house, thus releasing equity.
On top of the lawyer’s and estate agent’s fees, and the other costs associated with moving, you would have to pay a staggering amount in stamp duty – wouldn’t you be better off staying put?
Many people clearly think so. Across England, there are more than a million properties occupied by someone aged 65 or older and with at least two spare bedrooms. And they’re not going anywhere: more than 90pc of the 10.3 million households lived in by someone 55 or older did not move home in the three years up to 2015.
Why not? A survey by Later Life Ambitions, a campaign group that represents a quarter of a million pensioners, found that half of its members said the cost of moving was the main barrier to them upping sticks, with 30pc specifically citing stamp duty.
Policy Exchange, a think tank, has come up with a solution to get around this: reduce stamp duty for older people. In a report published this week it said this would “incentivise a new wave of older homeowners to downsize – which in many cases is simply not worthwhile”.
It specifically called on the Government to remove the 2pc stamp duty band, levied on homes priced between £125,000 and £250,000, for older homeowners looking to move. This would save you £2,500.
Policy Exchange is far from the first to suggest a tax exemption for downsizers. Crossbench peer Lord Best, a member of the All Party Parliamentary Group on Housing & Care for Older People, has long argued that it would encourage pensioners to downsize, releasing family housing for younger buyers and stimulating the sluggish property market.
It wouldn’t have to be out of the kindness of the Treasury’s heart; academic research has shown that a 1 percentage point reduction in stamp duty could boost property transactions by 20pc – suggesting that easing the tax burden on downsizers would bring in more stamp duty overall.
The Institute of Public Care at Oxford Brookes University worked out that even if transactions rose by just 10pc, the exemption would generate £186m in extra tax revenue per year.
The Government is clearly capable of applying some imagination to stamp duty. A year ago it changed the rules for first-time buyers, removing the levy altogether on properties worth up to £300,000 and taking 5pc on the purchase price between that and £500,000. This saved first-timers up to £5,000 in stamp duty.
Policymakers have also supported younger buyers’ property dreams with schemes such as Help to Buy – which has incentivised developers to build homes for this age range at the expense of catering for downsizers. The only bigger barrier than stamp duty to pensioners moving home, according to a Bank of England survey, is that they can’t find a suitable property. Older homeowners are stuck, and the entire property market is suffering.
Enabling pensioners to move home is more than a matter of freeing up the market for others. Living in homes that are not fit for purpose can dramatically increase an older person’s isolation, from rattling around in empty rooms not to mention running costs.
Accidents that arise from unsafe homes are estimated to cost the NHS £2.5bn a year – about the same as the burden from smoking and drinking. Falls alone cost the health service £600m a year. And don’t forget the looming care crisis: The Policy Exchange report pointed to evidence showing that older people who move into housing more suited to their needs are less likely to enter a care home than those who live in mainstream housing.
HMRC says it has helped 180,500 people buy a home since the cut in stamp duty for first-time buyers, saving this group a collective £426m. Imagine what it could do by extending this relief to the other – much larger and more valuable – end of the property ladder.
New figures produced by HMRC and analysed by investment consultancy London Central Portfolio suggest that stamp duty receipts fell 8.5 per cent in 2018 compared to the previous year. The duty gathered for HMRC some £8.669 billion - that’s £802m less than a year ago.
Information taken from Daily Telegraph 8.12.18 and updated with revenue fall information reported on Estate Agency Today web-site 4.2.19