Buried deep within the Office for Budget Responsibility’s (OBR) costings of the Chancellors 2021 budget, were details of a rise from 3% to 4% in the stamp duty surcharge on additional properties. While it turned out that its inclusion was an error, it does suggest that it is something the Treasury is actively considering.
With a 4% rate already payable in Wales and Scotland, it seems like England may be toying with the idea of following suit. Both Wales and Scotland have seen landlord purchases slump further since its introduction, alongside falls in rental stock as those paying the surcharge baulk at the higher costs. And with higher average prices in England, increasing the 3% surcharge rate may prove even more prohibitive to investors and second homeowners in England.
An increase in the surcharge from 3% to 4% would push up the average stamp duty bill on second homes by around 25%, from £9,500 to £11,900. With those paying the 3% surcharge already accounting for 48% of residential stamp duty revenue, it is likely any increase to 4% would see the surcharge account for over half of all residential revenue.
Of course, any increase in stamp duty bills is likely to be at least partly offset by a drop off in the numbers paying it, which was the case when the 3% surcharge was first introduced in April 2016. In 2015, 18% of homes in Great Britain were bought by second-home buyers and investors. So far this year that figure has fallen to 14%. The OBR’s analysis assumes a fall in 3% surcharge payers, but despite this, the increase in the SDLT rate will more than compensate for the fall. So overall the Treasury will make more money off the back of the tax hike.
Our analysis shows that an increase in the surcharge from 3% to 4% would raise an extra £200m-£300m annually, assuming higher average stamp duty bills but fewer people paying the surcharge. This is likely to be a similar or slightly higher amount than will be raised by the introduction of a 4% levy on developers profits above £25million.
The last five years have seen the government bear down on buy-to-let and increasing the surcharge would represent a continuation of this policy. In England, there are 250,000 fewer private rental properties than there were at the sector's peak in 2017 and this is pushing up rents.
However fashionable it may be to tax landlords, second homeowners or anyone buying a second property, it’s worth remembering that over 40% of surcharge receipts are refunded. This means large numbers of owner-occupiers are paying the surcharge, then recouping it later by selling after they’ve bought (up to three years after they’ve bought).
The prospect of extracting more revenue from landlords will need to be carefully balanced against rising numbers of owner-occupiers who are caught up paying the surcharge, money they must find upfront to complete their purchase, even if they’re refunded later down the line.