What’s standing in the way of downsizing for Gail, 58, from Manchester – who is self-employed and lives with her partner in a five-bed house she would like to swap for a smaller home? “Simply the cost of stamp duty. We live in an expensive area, so downsizing will cost us a lot in stamp duty, far more than we would save by having lower bills.”
In England and Northern Ireland, stamp duty land tax is charged on properties costing more than £250,000, unless you are a first-time buyer. In Wales, its equivalent applies to homes costing more than £225,000, and in Scotland it starts at £145,000. For a property costing £450,000 in England, it means a bill of £10,000 if you are not buying your first home.
Economists say this acts as disincentive for older people to move and means family homes are being underoccupied. Cutting the tax would, they say, make more people relocate to a smaller home.
The director of the Institute for Fiscal Studies, Paul Johnson, last month argued that stamp duty “gums up the housing market”. He also said it meant that “mutually beneficial transactions – for example, an older person in a big house trading places with a younger family in a smaller house – are disincentivised”.
The calls for a shake-up are getting louder: the former housing secretary Robert Jenrick described it as “a terrible tax” that “hinders the more than a quarter of homeowners, particularly pensioners, who want to downsize”.
A report published last month commissioned by Family building society suggested the UK’s housing stock would be better used if older homeowners could be persuaded to “right-size”. Would-be downsizers “cannot buy a home that costs the same as their original house without spending money on the tax, while they can stay put for nothing,” said the report’s authors. “Many thus continue to live in homes that are highly unsuitable for their needs.”
And a few days ago, the boss of housebuilder Taylor Wimpey said there was a real case for reducing the levy on lower-priced properties and for older people hoping to trade down to something smaller.
However, as Johnson also acknowledged, tax is not the only thing holding people back. Last year, the Centre for Ageing Better found that people aged over 55 were deterred from moving by a wide range of factors, including a lack of accessible housing.
Carole Easton, the charity’s chief executive, says: “The solution to the problem is not incentivising or pressurising older people into downsizing. Instead, we need planning and housing to focus more on older people’s needs and deliver the right properties in the right locations and at the right price to give older people greater options than are available now.”
Easton says it is “not just the size of a home that matters to people – issues such as access to services, connections to friends and families, transport and other community facilities are all important”.
When we asked readers what was putting them off a move to a smaller home, many, like Gail, cited stamp duty and the other high costs of a house sale, such as surveyor and solicitor fees and moving costs. But other reasons for staying put also came up again and again.
‘It would cost a fortune’
Stamp duty would be “a huge amount of money,” says Gail, who bought the current family home with her partner for £1.25m in 2012 with the proceeds of a previous sale.
The property has gone up in value since – as has the kind of homes they would move to in the first stage of downsizing.
“We don’t need a five-bed house for the two of us and would like to sell, make use of this capital and buy a smaller four-bedroom house for the interim, because our kids are in their 20s and both renting, so we’d need rooms for them,” she says. “But we paid £60,000 in stamp duty when we bought this house, and it would cost us a fortune again to move to a smaller home in this area.”
She estimates that the kind of house they would be looking for would cost between £1m and £1.2m, meaning the couple would have to hand over between £41,250 and £61,250 if they moved.
“Stamp duty makes downsizing just pointless, particularly [if you do it] in several steps. It’s just not worth it to lose this money – money we need to help our children get on the property ladder as well.”
‘There are very few homes’
“We have a 3,000 sq ft [278 sq metre] house with space for up to six bedrooms – an enormous old four-storey semi with a nice big garden,” says 72-year-old Andrew Metcalf from Ludlow, Shropshire.
“We sometimes think it’s silly for the two of us to still live here. It’s a lovely house, a five-minute walk into town, but we only need half of the rooms – the spare rooms are only used 10% of the time.”
The couple have two children, two grandchildren with more on the way, and a large extended family. “Occasionally we do have a full house, but we know that having a smaller place is less work, less hassle. We keep a very close eye on the property market, both locally and further out, but there just are very few homes with smaller gardens, fewer but large, light-filled rooms with the features we love, in the areas we want to live in.
“If we want to release more upmarket larger houses, we need to provide the quality smaller homes in desirable areas, with access to good, bookable local bedrooms for visitors, so [householders] don’t need to keep empty bedrooms.”
Even if they did sell, though, Metcalf says, he doubts the house would go to a family with children in need of more housing space.
“Our house is now worth £700,000 to £750,000. It would be too expensive for many young families looking for a larger home. Very, very few people around here who need three bedrooms for several children are on that sort of salary needed to get a mortgage for this kind of house.”
Retired Beverly, 70, from south Wiltshire, says she and her husband have been trying to find a smaller bungalow within a radius of about 25 miles of their current one: a three-bed home in a rural location 15 minutes by car from the nearest small town.
“Second homes and Airbnbs have taken a fair number of these off the market,” she says, before pointing to another issue: “A lot of smaller local properties that were available not so long ago have now been converted into very large dwellings, so not only is the price now well beyond our reach, but they are far too big.”
‘This is my only asset’
Helen, 55, from Bath, lives in a six-bed end-of-terrace house and has been racking her brains about how to use this asset to best support her family. “I would like to move to a smaller home in the next three years to release some equity for travel and improved quality of life,” she says. “My three children are all adults now and hard workers, but I just can’t see when they will be able to earn enough or save enough to buy their own home, and if they rely on rental housing, they will never be secure.
“I find myself now considering how to convert my house into three extremely compact flats so my children are at least housed, however imperfectly.”
Selling the house and using the proceeds to help her children get on the property ladder feels risky, Helen says, as she still has to pay off about half of the house’s £600,000 value, and she will be relying on the proceeds of the eventual sale in retirement. “Even for a very small flat, my children would each need a deposit of around £30,000. If I sold the house and gave them this money each, I’d lose about a third of my equity, and be forced to buy in another town.
“I’m trying to have this house [meet] multiple different needs. Homes were meant to be homes, not an asset class – but now they are, and this is my only asset.”
‘It’s a big part of my life’
Betty, 75, from Lewes, East Sussex, has lived in her six-bedroom detached house for 32 years. She has been widowed for nine.
“One reason for not moving is that I’ve got plenty of space for someone to live in and look after me, should it ever be needed,” she says.
“Another is financial anxiety, however irrational: I can manage the house maintenance and costs financially, but I have two grown children and one grandchild. One of my children is a single mother. She’s working but needs financial support.
“Having had some lodgers in the past, including a refugee for a year, I hesitate to close off the possibility of that income.”
Betty says the emotional attachment to her marital home and community would also make it difficult to downsize.
“I raised my children here, and this house is a big part of my very happy married life. I thought about downsizing often, but I don’t think I’m going to do it, unless my physical situation makes living here no longer possible.”
Stamp duty: how much is it likely to cost?
Stamp duty land tax (SDLT) is paid in England and Northern Ireland, while Wales has land transaction tax (LTT) and Scotland has land and buildings transaction tax (LBTT). Although they have different names, the taxes are broadly the same – they are paid by a buyer when they complete on a house sale.
There are special rules for first-time buyers in England, Northern Ireland and Scotland that mean many will pay less, or nothing.
In England and Northern Ireland, you will pay stamp duty on properties costing more than £250,000, unless you qualify for first-time buyer’s relief. If you don’t, 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 above £1.5m.
As things stand, these thresholds are temporary. They were changed in September 2022, and the current expiry date for this reduction is 31 March 2025. After that, the “residential nil-rate threshold” – the point at which non-first-time buyers start paying the tax – is due to revert to £125,000.
The rules mean that right now, on a £300,000 house purchase, a first-time buyer would pay zero stamp duty, but someone who was downsizing would pay £2,500. On a £450,000 purchase, the bill for the downsizer would be £10,000.
One concern downsizers may have is the effect swapping property equity for cash might have on inheritance tax. There is a “residence nil rate band” which lets a married couple leave up to £350,000 worth of housing to their children tax-free. The good news is that this is not lost if you downsize: your estate may qualify for the tax relief anyway. It’s complicated, so take professional advice.
Additional reporting: Hilary Osborne and Rupert Jones
