Prime Housing sales tumble across country as Stamp Duty Hike Hits

Raising stamp duty on prime properties sees Exchequer miss out on ~0.5BN Pounds in lost revenue as sectoral activity dips. 

In the aftermath of the UK’s Brexit vote and following a steady stream of residential tax increases, just released statistics from HM Land Registry, analysed by London Central Portfolio (LCP), has shown an unprecedented decrease in top-end sales across England and Wales in the first half of this financial year 2016-17.

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 fall in activity in this sector could also explain the strong demand for alternative investment vehicles that offer exposure to UK property.

One provider, Hunter Jones, has reported a 20-30% increase in demand for exposure to UK property from international investors since the Brexit vote.

According to LCP’s analysis, the super prime new build market (above £5m) has been hardest hit by the recent tax changes. Over the last 6 months, only 9 sales were registered above £5m.

Naomi Heaton, CEO of LCP comments:

“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 £5m, 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.”

These findings will have a significant impact on the Government’s Stamp Duty tax take for the financial year 2016-17. The increase in receipts from top-end sales, which were expected to counter lower levels of Stamp Duty under £1m, appear to have fallen far short.

According to LCP, Stamp Duty takings above £5m have already halved compared with last year, even assuming every sale attracted the 3% ARSD.

Calculating the tax take on sales over £1m, LCP project that the Government could be facing a £0.5bn hole in its Stamp Duty receipts over the last 6 months alone. With top-end sales unlikely to pick up in the face of the forthcoming ‘look through’ non-dom inheritance tax, this fall could be as much as £1bn at the end of the financial year.

Ironically, it is the significant fall in the value of sterling, due to the UK’s exit from the EU, that is preventing the decline in transactions and the associated reduction in tax take being even more significant.

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

Heaton 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.”