The Treasury has rejected calls for a new stamp duty break aimed at encouraging older homeowners and other owner-occupiers to move into smaller properties.
HM Treasury confirmed it has no plans to introduce further Stamp Duty Land Tax relief for downsizers. The decision came in a written response dated 8 September to a proposal from Frontdoor founder and chief executive Joel Hagan.
Hagan had proposed a “Rightsizing Relief”. It would provide a capped stamp duty exemption for owner-occupiers selling a larger home and buying a smaller property.
The proposal was designed to encourage more downsizing and release larger family homes onto the market.
However, the Treasury argued that many downsizers have substantial equity in their existing properties. It also pointed out that homeowners generally benefit from Private Residence Relief from Capital Gains Tax when selling their main home.
In addition, the Treasury said the stamp duty bill on a smaller replacement property would often be relatively modest. In many cases, it said the tax would be lower than the estate agent’s fee.
The Treasury also highlighted the importance of stamp duty receipts to the public finances. The tax raises around £12bn annually.
It said introducing another relief could therefore carry a significant cost to the Exchequer.
Proposal claims Treasury could gain £180m
Hagan disputes that assessment.
His proposal included a financial model designed to account for transactions generated further down a property chain.
Under its central assumptions, 100,000 rightsizing moves would result in £625m of foregone stamp duty. However, it estimates that onward transactions and associated activity would generate £805m.
That would leave the Treasury with a net annual gain of £180m, according to the model.
The calculation assumes each rightsizing move unlocks around 2.5 further transactions. It then discounts half of those on the basis that they would have happened anyway.
Hagan said: “The Treasury has costed this statically. Stamp duty is a tax on moving. It raises nothing at all from a house that does not change hands, so any costing that ignores the transactions a relief creates will always produce a large negative number.”
He added: “A downsizer does not move alone. They sell a four-bedroom house to a family, who sell a semi to a couple, who sell a flat to a first-time buyer. One exempted purchase at the top generates taxed purchases all the way down. This releases family housing that already exists, without a single planning application or a brick. It gets things moving now which is what the cost of living crisis demands.”
The Treasury’s decision comes against a softer housing market backdrop.
Lloyds reported this month that the average UK house price fell to £298,468 in August. That marked the first annual decline since November 2023.
Meanwhile, housing stock is around 5% higher than a year ago. Mortgage pricing has also moved upwards, with lenders including HSBC and NatWest repricing products in recent days.
The average two-year fixed mortgage rate has reached 5.63%. The Bank of England’s next interest rate decision is due on 17 September.
