Thread by @dc_lawrence

Everyone hates stamp duty. Everyone knows an annual property tax would be better. But no one has come up with a plan that:

1️⃣ Fully removes stamp duty
2️⃣ Leaves no one worse off than on the current system
3️⃣ Raises money for the Treasury from day one

Until now.

There are a plethora of think tank reports advocating switching from stamp duty to an annual property tax. Because stamp duty sucks! It gums up the property market and makes it costly to move house.

As a result, people stay in the wrong place for longer:
💼 workers pay a penalty for moving to new job opportunities
🪹 empty-nesters are effectively fined for downsizing
🧑‍🍼 new parents can’t afford homes large enough for their families.

But there’s a reason that no government has managed to replace it: ending stamp duty means EITHER:

⬇️ Foregoing a huge amount of revenue (close to £12bn) for years, OR
⬆️ Massively raising taxes on people who have just bought a house (and already paid stamp duty)

For all the pages that have been written on stamp duty, no one has managed to design a tax that avoids this dilemma.

We think we have an answer.

Our scheme would give buyers a choice: when you next buy a house, you can EITHER pay stamp duty on the current system, OR you commit to paying an annual property tax - 0.16% for an average property worth £300,000 (which works out at £480 a year).

For someone who moves house twice in 10 years, this will be a huge saving on the current system, as shown below:

Under our proposal, buyers would be given a choice: pay stamp duty, or opt in to paying an annual tax until they next sell the property.

This means that no one is worse off: no current owner would be affected until they next buy a house, so there is no “double taxing”. You only pay the new tax if you choose to forego paying stamp duty.

For buyers, this is a huge upfront saving:
💷 Stamp duty requires a large amount of liquidity, which many buyers, struggling for a deposit, don’t have. On average, stamp duty costs £4.5k, but for more expensive homes (or average homes in London) it can run into hundreds of thousands of pounds.
🏦Because you have to pay stamp duty from your savings, it reduces how much you can borrow - even if you can afford it.
🗓️Our property tax will be a smaller annual payment, calculated based on the purchase price.
🏡Any savings can instead be put towards a deposit, or buying a larger house.

This opens up the housing market for everyone and increases the volume of transactions. The removal of a tax wedge means more properties on the market.

🏗️ It could even raise construction activity. One study suggests that removing stamp duty could add over 3% to GDP and productivity.

These graphs show the level of tax for different properties under stamp duty, and under our proposed annual tax.

You might be thinking, this all sounds well and good, but how do we avoid it costing huge amounts of money to the Treasury?

We’ve designed a phased implementation that ensures a property tax is revenue-positive from day one, and raises vastly more than stamp duty in the long run.

In addition, we propose:
🏰 An ‘additional rate’ of 0.5% on properties worth over £2m (applied at the margin for value that exceeds £2m)
⚖️ A progressive schedule, so those with the broadest shoulders pay the most
✉️ Removal of the existing ‘envelopped properties’ loophole, whereby residential properties can be hidden in corporate structures to avoid tax.

This allows the Treasury to meet its fiscal rules while transitioning Britain to a fairer, more efficient system of property taxation.

You can read the full report from @pdmsero & me here: britishprogress.org/briefings/duty…

Huge thanks for feedback & input from lots of very smart people, including @johnrmyers @timleunig @arunadvaniecon @JamesHowat1 @morgan_wild @Sam_Dumitriu @bswud @KaneEmerson @freddie_poser & Matthew Stubbs.