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For landlords and people in the market for second homes with a million-plus pricetag, the Government’s extra stamp duty charge of 3% seemed like a huge blow, but our analysis shows it has actually cost them nothing in real terms.
That’s because the slowdown in the top end of the market has knocked tens of thousands off the value of these luxury homes.
Analysis of Land Registry data by Private Finance shows the average price among the top 5% of property sales across England and Wales in 2016 was £1.121m. This was up by just 0.5% from 2015 when the figure stood at £1.115m.
In London the stamp duty reforms that came into force in April 2016 have added an extra £77,431 to the stamp duty bill on high-end properties. But this sum is completely wiped out by the £169,410 saving these buyers will make as a result of slower house price rises.
Outside the capital, second home buyers at the top end of the market are paying £33,639 more in stamp duty than they were before the tax changes, but slower house price growth has still saved them £40,827.
The slowdown in sales of high-value homes probably occurred because buyers were put off by the perceived costs of the stamp duty reforms as well as fears about what impact Britain’s decision to leave the EU might have on house prices.
The reforms mean that a property worth £1.121m is now liable for stamp duty of £89,521 if purchased as a buy-to-let (BTL) or second home, at an effective tax rate of 7.98%.
This is £33,639 more than the £55,882 fee under the previous system, which still applies if the same property is bought as a main residence, at an effective tax rate of 4.98%.
Annual price growth of 0.5% in 2016 among the top 5% of transactions was markedly slower than across the rest of the market, where average 2016 prices grew 4.2% from 2015.
Had the top 5% of the market risen at the same rate, buyers would have had to part with £1.162m for the average high-value home in 2016, rather than £1.121m – that’s an extra £40,827. This saving more than compensates for the additional £33,639 stamp duty bill facing landlords and second homebuyers.
Meanwhile , the top 5% of 2016 property sales in the capital averaged £2.581m, up by 1.5% from £2.543m in 2015. However, the remaining 95% of the London property market saw average prices grow by 8.2% over the same period from £443,259 to £479,507.
Had the top 5% of the London market grown at the same 8.2% rate, it would have pushed average prices in this bracket up to £2.750m: leaving buyers to stump up an extra £169,410 for their purchase.
This far exceeds the additional £77,431 in stamp duty that would be due on a £2.581m home if it was bought as a BTL or second home (where stamp duty would cost £300,903) rather than a main residence (where £223,472 would be due) as a result of the April 2016 reforms.
Shaun Church, director at Private Finance, says: “A healthy housing market needs movement and fluidity at all levels and across all tenures, but successive changes to stamp duty in 2014 and 2016 have had the opposite effect.
“If there is one silver lining for would-be buyers and investors, it’s that slower growth of high-value property prices has had a positive impact on affordability. A buyer today can pay markedly less for a high-value property at the top end of the ladder than if growth had kept pace with the rest of the market, making it easier to absorb any extra stamp duty fees.”