In the last six months following the second home stamp duty increase, the revenue accumulated from the tax has fallen by £500 million, according to recent research.
The report from London Central Portfolio (LCP) analysed figures from the previous 12 months and summarised the key findings:
- Sales above £10 million fell by 75% – this represents a drop from 61 to 15
- Sales between £5 million and £10 million fell by 51% – this represents a drop from 201 to 99
- Sales between £2 million and £5 million fell by 36% – this represents a drop from 1473 to 947
- Sales between £1 million and £2 million fell by 33% – this represents a drop from 7285 to 4913
With an 83% reduction in sales exceeding £5 million, the super prime, new build sector has been hit the hardest. This represents a drop from 52 to 9.
For sales above the £5 million mark, the drop in activity for the last six months alone, has meant the Government has at best collected just 50% of the stamp duty it had accumulated over the same period in 2015, as this assumed a levy of additional stamp duty (3%) on all sales.
The reduction of sales activity exceeding £1 million has, over the past six months, potentially led to a loss to the Exchequer of almost £0.5 billion.
Following the result of June’s referendum and after the continual flow of residential tax rises, top-end sales have significantly decreased in the first half of the financial year across England and Wales. This unprecedented drop, has been indicated by figures from Land Registry which have then been analysed by the LCP.
The data collected from May to October mirrors the period immediately after the 3% additional stamp duty (ARSD) on second properties, introduced on 1st April 2016.
In comparison with the same six-month period in 2015, sales above £10 million in the super-prime market have dropped by 75%. A 51% drop has been observed for sales between £5 million and £10 million. In the last six months, only 262 properties have been sold. Similarly across other ‘luxury’ price bands, significant falls in transactions have been seen, with a 33% drop in sales between £1 million and £2 million and a 36% fall in sales between £2 million and £5 million.
The super-prime market (over £5 million), has been the hardest hit by the tax changes, according to the LCP’s analysis. Only 9 sales have been registered above £5 million over the last 6 months.
Commenting on the impact of the ARSD was Naomi Heaton. The CEO of LCP stated: “As can be seen over the last 6 months, the market appears to have finally succumbed to the constant residential tax hits from the Government. Against a backdrop of uncertainty around Brexit and the direction of travel of the UK’s economy, it seems that the introduction of ARSD has been one step to far for both domestic and international buyers.
“Developers have been particularly affected by the new landscape with only 9 properties sold above £5 million, a staggering 83% fall compared with last year. With these top end sales typically off-setting the cost of providing more modest housing and essential cash-flow to reinvest into new development, the Chancellor may well struggle to deliver upon his new affordable housing targets as developers begin to face losses.”
For the financial year 2016-17, the statistics are likely to impact the Government’s stamp duty tax take significantly. The expected high number of receipts from top-end sales seem to have fallen short; these were predicted to counter reduced levels of stamp duty below £1 million.
Even assuming each sale attracted the ARSD, in comparison with last year, stamp duty takings over £5 million have halved, according to LCP. Over the last six months alone, LCP forecast that the Government may be subject to a hole of £0.5 billion in its stamp duty receipts, if calculating the tax take for sales exceeding £1 million. Paired with the introduction of the non-dom inheritance tax, top-end sales are unlikely to increase and potentially lead to a total fall valued at £1 billion by the end of the financial year. The drop in transactions and affiliated tax take drop has been prevented from falling even further, ironically due to the EU referendum result and substantial fall in the sterling’s value.
When comparing revenues of stamp duty for the six months prior to April 2016 with the six months following it, the picture becomes significantly worse for the Exchequer. Many sales were brought forward during this period, in order to miss the ARSD’s introduction. The resulting impact of this was a 43% collapse in transactions for £1 million plus, and a potential loss for the economy of £645 million in Stamp Duty.
Heaton further expressed concern for the impact the reduced activity in the top-end property market might have:
“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”
The CEO of LCP concluded by mentioning the potential negative effects of preventing investors from entering the top-end market:
“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.”
