Stamp Duty Stalemate – Why Brits Aren’t Downsizing

A significant slump in downsizing has been blamed on the hefty charges of Stamp Duty and Inheritance Tax, casting a long shadow over the dreams of many homeowners wishing to scale down in their later years.

At the forefront of the dilemma is Stamp Duty Land Tax (SDLT), a levy that has become a formidable barrier to a vibrant housing market. Recoco Property Search, a buying agency, has flagged this tax as a primary obstacle preventing homeowners from downsizing. The absence of reforms in the recent Budget announcement means this issue will continue to dampen market movements.

Nigel Bishop, the founder of Recoco, said, “The UK is home to a vast number of property owners aged 65 and over, living in homes that have become too large for them. Many are keen to downsize but are held back by the current SDLT levels.”

The numbers are telling. Savills’ research uncovers that 1.29 million owner-occupiers over 65 are in four-bedroom houses. A previous study by Hargreaves Lansdown found that over a quarter of UK homeowners wish to downsize for retirement, but costs, including Stamp Duty, make it prohibitively expensive for 22%, with an additional 13% citing Stamp Duty as the sole reason.

Bishop continues, “With property values skyrocketing over decades, SDLT rates ranging from 5% to 12% can add a significant financial burden, deterring many from selling their homes.”

A Trio of Downsizing Drivers

People primarily downsize for three reasons: seeking a more manageable property, lifestyle changes, or to release equity to support retirement or help family members financially. The story of a couple who sold their large five-bedroom house in Devon, freeing over £2.5 million in capital, exemplifies the latter. Yet, despite such success stories, the high SDLT rates for purchases above £250,000, and an additional 3% surcharge for buying a new home while owning a second property, like a buy-to-let, significantly complicate the process for many.

Inheritance Tax Woes

Adding to the dilemma, downsizers must navigate the complexities of Inheritance Tax. The current ‘residence nil rate band’ allows a married couple to leave only up to £350,000 of their property value tax-free, a figure that has remained static despite soaring property prices. Bishop suggests, “Updating the threshold to reflect the current market, potentially to £500,000 per person or £1m for couples, is long overdue.”

The Call for Change

Experts argue that reforming SDLT could reinvigorate the market by encouraging those looking to downsize. Such a move would not only benefit the elderly demographic but also free up much-needed family homes, addressing the chronic undersupply plaguing the UK. As it stands, both Stamp Duty and Inheritance Tax reforms are crucial steps toward a healthier housing ecosystem, offering a glimmer of hope for those wishing to downsize without facing financial disincentives.