Market Insight - March 2017
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Caught in a Trap

Caught in a Trap
Who is actually paying the extra Stamp Duty?

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The 2015 Autumn Statement saw the government announce another change to the Stamp Duty regime – this time aimed at landlords and second home owners. For the first time, someone who only owns one home is treated differently to someone who owns more. The government’s aim was to stop people ‘buying homes to let, and squeezing out families who can’t afford to buy’. Official statistics show that in the first three months since the change was introduced, 11% of homes sold in the UK attracted the surcharge. That increased to 19% in the third quarter of 2016 and to 22% in the fourth. Countrywide sales suggest that the proportion of buyers paying the surcharge will settle at around a quarter.

That is a large proportion, so who exactly is paying up? With the surcharge firmly aimed at investors, it’s not surprising that landlords are the largest group of people paying the higher rates. Over the first nine months they accounted for 60% of the sales liable for the surcharge, equating to 89,640 of the 149,400 transactions liable for the higher rate. While the number of homes bought by landlords dropped sharply when the new charge kicked in, they have increased as a proportion of all sales in every subsequent month.

However, 40% (59,760 homes) of those paying the surcharge aren’t landlords and had to pay an extra £8,560 in Stamp Duty on top of what they would have previously paid. The largest, 21% (31,374 homes), are owner occupiers who are yet to sell their original residence. For some, paying the extra Stamp Duty will be a short term outlay that they will recoup when they sell their current main residence within three years. But others have chosen to hold onto what was their main residence and will not receive a refund.

Therefore second home buyers make up 9% (13,446 homes) of people paying the extra 3%, but it has made little difference to their behaviour. That’s probably because the decision to buy a second home often isn’t purely based on finances and because people tend to hang on to second homes for a long time.

Small developers, those buying homes to do up and sell on, make up 8% (11,952 homes) of the purchases paying the extra 3% Stamp Duty. Given their inability to spread the higher rate over a longer period, these micro developers have been the buyers hardest hit by the higher rates. Across the country as a whole their numbers are running at around half the levels they were. In London, where in cash terms the additional Stamp Duty is most expensive, the number of people buying homes to do up and sell on is down by two thirds.

The final 2% (2,988 homes) of people paying the extra Stamp Duty are parents and relatives buying a home with their children. For some, having parents on the deeds is what it takes to make the purchase affordable while for others the home is bought by a parent for their children to live in.

It’s clear that the Stamp Duty surcharge has caught more people than the government envisaged and has raised almost twice as much as first thought. But it also acts as a disincentive to buy and sell. Landlords are now thinking much harder both about buying and selling, with the cost of replacing a sold home now substantially higher.

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