In the aftermath of the UK’s Brexit vote and following a steady stream of residential tax increases, just released statistics from HM Land Registry, analysed by London Central Portfolio (LCP), has shown an unprecedented decrease in top-end sales across England and Wales in the first half of this financial year
2016-17. Recording sales from May to October, the data reflects the period immediately following the introduction on April 1st 2016 of the new 3% Additional Rate Stamp Duty (ARSD) on second properties.
In the super-prime market, sales above £10m have fallen 75%, compared with the same 6-month period last year, whilst a reduction in sales of 51% between £5m – £10m has also been seen. This means that only 262 properties have been sold in the last 6 months. Large falls in transactions have also been witnessed across the other ‘luxury’ price bands, with a 36% and 33% reduction in sales between £2m – £5m and £1m – £2m, respectively.
According to LCP’s analysis, the super prime new build market (above £5m) has been hardest hit by the recent tax changes. Over the last 6 months, only 9 sales were registered above £5m.
Naomi Heaton, CEO of LCP comments: “As can be seen over the last 6 months, the market appears to have finally succumbed to the constant residential tax hits from the Government. Against a backdrop of uncertainty around Brexit and the direction of travel of the UK’s economy, it seems that the introduction of ARSD has been one step to far for both domestic and international buyers.
“Developers have been particularly affected by the new landscape with only 9 properties sold above £5m, a staggering 83% fall compared with last year. With these top end sales typically off-setting the cost of providing more modest housing and essential cash-flow to reinvest into new development, the Chancellor may well struggle to deliver upon his new affordable housing targets as developers begin to face losses.”
These findings will have a significant impact on the Government’s Stamp Duty tax take for the financial year 2016-17. The increase in receipts from top-end sales, which were expected to counter lower levels of Stamp Duty under £1m, appear to have fallen far short.
According to LCP, Stamp Duty takings above £5m have already halved compared with last year, even assuming every sale attracted the 3% ARSD. Calculating the tax take on sales over £1m, LCP project that the Government could be facing a £0.5bn hole in its Stamp Duty receipts over the last 6 months alone. With top-end sales unlikely to pick up in the face of the forthcoming ‘look through’ non-dom inheritance tax, this fall could be as much as £1bn at the end of the financial year. Ironically, it is the significant fall in the value of sterling, due to the UK’s exit from the EU, that is preventing the decline in transactions and the associated reduction in tax take being even more significant.
The picture is substantially worse for the Exchequer when comparing Stamp Duty revenues for the 6 months to April 2016 with the following 6 months. In this period, many sales were brought forward before April as buyers rushed to beat the 3% ARSD deadline. This has resulted in a 43% collapse in £1m+ transactions and a potential £645m Stamp Duty loss for the economy .
Heaton comments: “This slowdown in the luxury property market – a big contributor for the Exchequer and UK economy in general – is very concerning, particularly as the Government faces wider economic and financial instability in the face of Brexit. With an already increasing deficit to address and the Government’s declared intent to increase tax revenues, these statistics should make some worrying reading for Chancellor Hammond. Having missed the opportunity to reconsider Osborne’s strategy at the Autumn Statement, we hope the Government will now look to relax some of these measures before there are detrimental knock-on effects for developers, the Exchequers balance sheet and the wider UK economy”
Heaton concludes: “It is about time that the Government understands that the political posturing that has made foreign investment the scapegoat for our UK housing crisis is having an entirely negative impact. A contraction of the luxury market will not miraculously provide new homes for the domestic market. It will simply reduce tax take and damage the wider economy as affluent investors spend their money elsewhere. At a time when the Government is actively trying to encourage investment into the UK globally, it is counter-intuitive to restrict investor access to our top-end market. This makes the UK appear a less attractive place to do business in, with the concomitant economic downside which goes with it.”