A UK-based leading thinktank has recommended the abolition of stamp duty land tax (SDLT), as it will be detrimental to the UK housing sector in the long-term. To replace the lost revenues, it has suggested by reforming the council tax.

Adam Smith Institute – the Free Market Thinktank in its report “Beyond the call of duty – Why we should abolish Stamp Duty Land Tax” contended that property worth £7.5 trillion the UK was being taxed in strange and inconsistent ways. Stamp duty land tax is a transactions tax on residential and commercial property. It is paid by buyers when residential properties change hands for more than £125,000, and when commercial properties are sold for £150,000 or more.

Taxing housing transactions keeps people in houses that are either too small, too big, or too far away from jobs, which are especially harmful when the housing supply is so tight, as it is in the UK today, the report observed.

In the short-term, the Treasury should “abolish SDLT and replace the lost revenues by reforming council tax – fixing the regressive top end of the system with a more proportional, or even progressive, tax on rental and imputed rental values would bring in the needed revenues easily, with far smaller economic costs,” the Institute suggested.

Eventually the UK should rationalise its property taxation system by abolishing SDLT altogether, and then rolling council tax, and business rates into one system, with everyone paying the same rate, set at roughly 20 per cent of imputed rental income, comparable to extending VAT to property services. This would be roughly fiscally neutral on a static analysis, but may lead to large increases in revenue over time, which should be used to reduce other taxes.