Buyers paid a record £9.5bn in stamp duty in 2017 following a tax hike for those purchasing a second property.
The Government’s take from Stamp Duty Land Tax jumped by £1.3bn year-on-year to £9.5bn, according to analysis of official figures by London Central Portfolio.
Much of the rise was due to the 3% stamp duty surcharge imposed on buy-to-let investors and those purchasing a second home, with 2017 marking the first full year that the increased rate was in force.
The average owner-occupier in England and Wales handed over £7,161 in stamp duty during the year, soaring to £27,232 for people in London.
Why is this happening?
Some of the increase in the amount of stamp duty paid can be accounted for by higher house prices, as stamp duty is calculated as a percentage of a property’s value.
But the majority of the rise is due to the 3% surcharge imposed on those buying an additional property.
People in this category accounted for 43% or £4.1bn of the total tax take.
Although the higher rate was introduced in April 2016, many investors brought forward purchases to the first quarter of that year to avoid paying the surcharge.
As a result, the full impact of the hike was only really seen in 2017.
If the 3% rate had not been introduced, stamp duty receipts would actually have fallen to 2014 levels of around £7.5bn.
Who does it affect?
Home movers in London, where house prices are highest, paid the most stamp duty.
People in Greater London paid 39% of the total take, with £600m coming from just two boroughs, namely the Royal Borough of Kensington and Chelsea and the City of Westminster.
Those buying properties at the top end of the market were also hit hard by the tax, with transactions on the most expensive 10% of homes accounting for 60% of all stamp duty paid.
What’s the background?
Stamp duty has long been criticised for having a negative impact on the housing market.
A recent report by the London School of Economics blamed it for contributing to the UK’s ‘dysfunctional property market’.
It said stamp duty discouraged people from downsizing because of the tax bill they would face, while it also encouraged families who wanted more space to extend their existing property rather than move home.
The report also claimed the tax was an impediment to social mobility, as it acted as a disincentive to people to relocate to take up a new job.
Concerns have also been voiced about the impact the 3% surcharge is having on the buy-to-let sector.
The increase, alongside a number of other tax changes, has made the sector less profitable for landlords, causing many investors to stop expanding their portfolios.
There is already a mismatch between supply and demand for rental homes, which is applying upward pressure to rents.
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Top 3 takeaways
- Buyers paid a record £9.5bn in stamp duty in 2017
- The Government’s take from the tax jumped by £1.3bn year-on-year
- Much of the increase was due to the 3% stamp duty surcharge for buy-to-let investors and those purchasing a second home
Do you believe the 3% stamp duty for second homes has been a good initiative? Let us know in the comments below...