Countrywide research - Spring 2017
Search for a property

Stamp Duty Surcharge

Caught in a trap

Click to download as PDF

The 2015 Autumn Statement saw the government announce sweeping changes to the stamp duty regime. For the first time ever, a buyer who only owns one home is treated differently to someone who owns two or more with the aim of stopping people ‘buying homes to let 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, a figure which has since risen to 19% in third quarter of the year and to 22% in the fourth. Countrywide sales suggest that going forward around a quarter of buyers will pay the stamp duty surcharge.

With a quarter of all buyers liable for the surcharge, it looks likely that the additional stamp duty will raise more than the government envisaged

When the surcharge was announced in the 2015 Autumn Statement, the OBR estimated that in the first financial year (2016/17) the levy would bring in £625 million, but in the first three-quarters of the year the levy has already raised £1.2 billion. This comes despite many who were liable for the new levy bringing their purchase forward. If current trends continue, it is likely that the government will raise more than twice what it initially envisaged.

Countrywide data shows that this higher revenue has been driven by the wide range of people paying the higher rates. With the surcharge firmly aimed at investors, it is 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.

But 40% (59,760 homes) of those paying the surcharge are not landlords and have coughed up 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 which 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.

Those buying second homes make up 9% (13,446 homes) of people paying the surcharge. The behaviour of second home buyers has changed least of any group by the additional stamp duty levy. Potentially this is because the decision to buy a second home often isn’t purely a financial one and people tend to hang on to them for a long time. They continue to account for between 2% and 3% of all sales since the introduction of the new stamp duty levy, unchanged from pre-April levels.

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 the additional stamp duty is most expensive in cash terms, 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 the 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. Lenders have started to react to the introduction of the higher stamp duty rates prompting a range of joint mortgages which don’t require everyone to be named on the deeds, helping cut the tax bill of their customers.

It is clear that the stamp duty surcharge has caught more people than the government thought it would

And as a result it could raise twice as much as first envisaged and has served to act as a big disincentive to buy and sell. Landlords are thinking much harder both about buying and selling, with the cost of replacing a sold home now substantially higher. But what difference has the new levy made to those it was aimed at helping?

Since it was introduced fewer first-time buyers find themselves up against a landlord

In 2015, 16% of those buying their first home faced competition from a landlord compared to 11% in 2016 after the new rates were introduced. And when they do face investor competition they are more likely to come out on top. Since April 56% of first-time buyers who faced competition from a landlord walked away with the house key, the highest figure on record.

In the first nine months after its introduction, the stamp duty levy has given some first-time buyers and owner-occupiers a helping hand. Between April and December 2016, around 9,000 fewer people buying their first home lost out to a landlord than over the same period during 2015. But this small boost has come at a high price given the number of non-landlords caught up paying the higher rates. Ensuring that fewer buyers get caught up in the tax primarily aimed at landlords is a priority for the health of the housing market and the wider economy.

A Changing Landscape Stamp Duty Surcharge The Changing Landlord Yields Rental Forecasts

We use cookies on our website which are strictly necessary to ensure optimal site performance, functionality and for analytics. You can manage your cookie preferences via your browser settings. To learn more about the different types of cookies and how we use these, please see our Cookies Policy.