Lucian Cook, Director of Residential Research at Savills and author of ‘Taxing Mansions’ for the CPS, blogs on the reports that the Chancellor will raise stamp duty on high-value properties in the budget.
If today’s reports are correct, Chancellor George Osborne will increase the stamp duty rate on homes over £2m to 7% in today’s budget. This would be a clear signal that stamp duty remains the weapon of choice for taxing high value property. While greatly preferable to an annual property tax (the Mansion Tax), this sharp increase in tax on high value residential property could cause some issues in the market, particularly locations dominated by domestic buyers.
On the basis of sales recorded by HMRC, my calculations are that this would raise an additional £314million in revenue. However if this is combined with closing stamp duty avoidance, that figure rises to £436 million (assuming 1 in 10 properties above this level currently avoid stamp duty - our suggested figure).
That would mean that £2m-plus properties would account for some 23% of stamp duty receipts from residential property, despite only accounting for fewer than one in two hundred housing transactions in the UK.
It is also interesting to see how the £2m+ market has increased its share of receipts. In 2007, that sector generated £720m or 10% of all stamp duty receipts from housing. Assuming that the total tax take rises to our estimate of £1.22bn there will have been a 70% increase in tax revenue over five years.
There is one proviso to these figures; accurately determining stamp duty avoidance is particularly difficult - if stamp duty avoidance accounts for 20% of all transactions at this level then the total additional tax would rise from £436 million to £588 million.
Of course the bulk of that revenue is going to come from London and the South East. Of the £2m+ sales recorded by the Land Registry in England and Wales over the past five years, 73% took place in London and 48% in the three boroughs of Kensington and Chelsea (25%), City of Westminster (15.5%) and Camden (7.5%).
These measures will mean that high value property is making a hugely disproportionate contribution to the tax take. And, for all the talk of stamping out stamp duty evasion, this move will provide an even stronger incentive to property lawyers to dream up new, perfectly legal evasion schemes.
Post-budget, CPS Director Tim Knox will comment further on this story.