Scrapping one tax could save pensioners £5,480 and still boost Treasury coffers. Why wait?

Property experts are urging Labour chancellor Rachel Reeves to slash stamp duty for pensioners to encourage them to downsize and free up large family homes for younger buyers.

A new paper by think tank Policy Exchange said older people are often prevented from downsizing because stamp duty costs eat into the inheritance they hope to leave their children.

The charge increases with rising property values, making downsizing increasingly expensive.

While government finances are tight, a targeted stamp duty cut in the autumn Budget could potentially boost market transactions and Treasury coffers, too.

David Hannah, group chairman of property specialists Cornerstone Tax, is backing the call for targeted stamp duty reform, saying it would support both first-time buyers and pensioners.

It would further boost tax revenues by stimulating the housing market, including all the businesses that feed off it, such as plumbers, electricians and kitchen and bathroom manufacturers.

Despite stamp duty generating around £13billion annually, a temporary cut in 2022 caused receipts to surge to £17.5billion, he pointed out.

Currently, homes valued at £250,000 or less are exempt, while those valued between £250,000 and £925,000 face a 5% levy. 

“With the average UK home priced at £285,201, these thresholds are overdue for an overhaul as they have never been index-linked to house price inflation,” Hannah said.

An increase in these thresholds would stimulate activity at the lower end of the property market and allow first-time buyers to reduce the amount they need to borrow, thus improving their affordability calculations, he added. “A rising tide lifts all boats.”

Campaigners say offering a targeted stamp duty cut for pensioners would also support older people who are struggling to heat and maintain larger family homes.

Waiving the levy on so-called “last-time buyers” moving to a smaller, more manageable property would also free up family homes for growing families in need of space.

The stamp duty land tax has been widely condemned as a tax on mobility that gums up the housing market, by adding around £3,000 to the cost of the average property purchase.

An older person downsizing from a £750,000 property to one costing £500,000 would pay a hefty £12,500 on their new purchase.

The burden is set to get worse as the stamp duty threshold will drop to just £125,000 in March 2025, which will lift the bill on an average home in England to £5,480.

That's a big potential saving for pensioner downsizers. Some could save a lot more.

Jonathan Rolande, spokesman for the National Association of Property Buyers (NAPB), has previously called for a stamp duty holiday for downsizers.

"Many older homeowners have been keen to downsize for some time and scrapping stamp duty on their new house, flat or bungalow could be a spur to take action.”

Paula Higgins, chief executive of the HomeOwners Alliance, said the cost of moving is considerable with stamp duty often the single biggest expense.

Many downsizers look to buy a smaller, less expensive property to free up equity locked in their home and use the proceeds to fund their retirement. “Forking out extra for stamp duty could very well tip the balance against trading down.”

Institute of Fiscal Studies director Paul Johnson has previously called on Ministers to stamp on stamp duty as this would "free empty nesters to fly their coops”.

Pressure is building on Labour chancellor Rachel Reeves to act in her autumn Budget. Pensioners will hope she listens. Younger buyers might be the surprice beneficiaries.