Stamp Duty remains one of the biggest obstacles for downsizers

Posted on Thursday, March 14, 2024

Due to the current level of SDLT, many potential downsizers remain reluctant to move. 

Stamp Duty continues to be one of the biggest obstacles that prevents homeowners from downsizing and, according to Recoco Property Search, the Chancellor’s lack of action on this levy during the Spring Budget will carry a negative ripple effect for the property market.

Nigel Bishop, founder of Recoco Property Search, says: “The UK has a vast number of property owners aged 65 and over who live in properties that are now too large for them and would like to downsize but, due to the current level of SDLT, are reluctant to do so.

"As a result, buyers and especially families are effectively deprived of a substantial number of family homes that would otherwise be put up for sale.”

Research published by estate agency Savills last month found that there are 1.29m owner-occupiers aged 65 and over living in a four-bedroom house. A previous study (November 2023) by wealth manager Hargreaves Lansdown revealed that more than a quarter of homeowners in the UK want to downsize in retirement but 22% haven’t been able to do so because it is too expensive with a further 13% blaming the cost of Stamp Duty.

Bishop adds: “Property values have ballooned over the past decades which means the SDLT rate of 5% to 12% can present a substantial expense that stops many people from selling up and pursuing buying a different property.

"We believe that a freeze of SDLT for downsizers would encourage this market demographic to finally make that step which will inevitably boost the number of family homes being put up for sale. With the UK suffering from a chronic undersupply of larger family homes, buyers and sellers could really benefit if the levy underwent an adjustment."

Reasons for homeowners wanting to downsize

Recoco Property Search found that the majority of people wanting to downsize do it for three key reasons:

1: To live in a more manageable property

3: Release equity to fund retirement or help relatives financially

Robin Thomas, a search consultant at Recoco Property Search, confirms: “We recently met a couple who have sold their large five-bedroom house in Devon as their children have all flown the nest and are living elsewhere. The sale generated more than £2.5m and the couple intends to release some capital to give to their children whilst using the remaining sum to purchase a smaller property.”

How much can Stamp Duty cost you?

Bishop explains: “Unless you are a first-time buyer and qualify for the first-time buyer relief, you pay 5% on the portion from £250,001 to £925,000, 10% on the portion from £925,001 to £1.5m and 12% on anything over £1.5m. It’s important to remember that if you own a second property such as a buy-to-let investment, it will trigger an additional 3% SDLT surcharge on the purchase of your new home.

"Downsizers are also concerned about the impact of swapping property equity for cash on inheritance tax. As it stands, there is a ‘residence nil rate band’ which allows a married couple to leave only up to £350,000 worth of housing tax-free.

He concludes: "Although Jeremy Hunt initially announced that the Inheritance Tax threshold will be locked in until 2028, many homeowners would welcome the government to rethink this move.

"The threshold hasn’t been updated in over two decades whilst property values have increased dramatically during this time. It is therefore outdated and raising the threshold from £325,000 to £500,000 per person or £1m for couples seems long overdue.”

Via @PropertyReporter