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Stamp duty surcharge triggers slump in tax receipts from luxury home sales

19 December 2016

Stamp duty surcharge triggers slump in tax receipts from luxury home sales

Former Chancellor George Osborne's introduction of a 3 per cent stamp duty surcharge on second properties in April 2016 caused a dramatic fall in HM Treasury's revenues from the tax, according to property specialists London Central Portfolio.

Year on year sales of properties worth over GBP10 million fell 75 per cent from 61 to 15, while sales of properties in the GBP2–5 million bracket fell 36 per cent, from 1,473 to 947. The resulting loss to the Exchequer is nearly GBP500 million in just six months as prime housing sales tumble across the country.

In the six months following the Government’s introduction of the new 3% Additional Rate Stamp Duty on second properties, compared with the same period last year, there has been:

  • A 75% reduction in sales above £10m. This represents a fall from 61 to just 15.
  • A 51% reduction in sales between £5m - £10m. This represents a fall from 201 to just 99.
  • A 36% reduction in sales between £2m and £5m. This a fall from 1473 to 947.
  • A 33% reduction in sales between £1m and £2m. This represents a fall from 7285 to 4913.

The super prime new build sector has been the hardest hit with an 83% reduction in sales above £5m. This represents a fall from 52 to just 9.

The reduction in activity above £5m in the last six months alone, means the Government has collected at best just half of the Stamp Duty it accrued over the same period last year (or £122m less), as this assumes the Additional Rate Stamp Duty (3%) was levied on all sales.

In total, the reduction in sales activity above £1m in the last six months alone, may have resulted in a loss to the Exchequer of nearly £0.5bn.

The picture is substantially worse for the Exchequer when comparing Stamp Duty revenues for the 6 months to April 2016 with the following 6 months. In this period, many sales were brought forward before April as buyers rushed to beat the 3% ARSD deadline. This has resulted in a 43% collapse in £1m+ transactions and a potential £645m Stamp Duty loss for the economy. 

Naomi Heaton, CEO of LCP comments: “This slowdown in the luxury property market – a big contributor for the Exchequer and UK economy in general – is very concerning, particularly as the Government faces wider economic and financial instability in the face of Brexit. With an already increasing deficit to address and the Government’s declared intent to increase tax revenues, these statistics should make some worrying reading for Chancellor Hammond. Having missed the opportunity to reconsider Osborne’s strategy at the Autumn Statement, we hope the Government will now look to relax some of these measures before there are detrimental knock-on effects for developers, the Exchequers balance sheet and the wider UK economy”

Heaton concludes: “It is about time that the Government understands that the political posturing that has made foreign investment the scapegoat for our UK housing crisis is having an entirely negative impact. A contraction of the luxury market will not miraculously provide new homes for the domestic market. It will simply reduce tax take and damage the wider economy as affluent investors spend their money elsewhere. At a time when the Government is actively trying to encourage investment into the UK globally, it is counter-intuitive to restrict investor access to our top-end market. This makes the UK appear a less attractive place to do business in, with the concomitant economic downside which goes with it.”

Naomi Heaton, CEO of LCP comments: “This slowdown in the luxury property market – a big contributor for the Exchequer and UK economy in general – is very concerning, particularly as the Government faces wider economic and financial instability in the face of Brexit. With an already increasing deficit to address and the Government’s declared intent to increase tax revenues, these statistics should make some worrying reading for Chancellor Hammond. Having missed the opportunity to reconsider Osborne’s strategy at the Autumn Statement, we hope the Government will now look to relax some of these measures before there are detrimental knock-on effects for developers, the Exchequers balance sheet and the wider UK economy”

Heaton concludes: “It is about time that the Government understands that the political posturing that has made foreign investment the scapegoat for our UK housing crisis is having an entirely negative impact. A contraction of the luxury market will not miraculously provide new homes for the domestic market. It will simply reduce tax take and damage the wider economy as affluent investors spend their money elsewhere. At a time when the Government is actively trying to encourage investment into the UK globally, it is counter-intuitive to restrict investor access to our top-end market. This makes the UK appear a less attractive place to do business in, with the concomitant economic downside which goes with it.”

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