|LCP has analysed HMRC’s Quarterly Stamp Duty Land Tax (SDLT) Statistics for Q3 2018 compared with Q3 2017. This provides an accurate barometer of current market strength taking into account seasonality. It also adds back transactions and receipts from the Welsh Revenue Authority (as Wales has been omitted from the HMRC SDLT report data since Q2 2018). This reveals:|
Transactions in England, Wales and Northern Ireland have fallen 4% in Q3 2018 compared with Q3 2017 and nowstand at 290,740. They are down 8.7% on three years ago (Q3 2015).Tax receipts for Q3 2018 are down 8.2% on Q3 2017 and now stand at £2,392m (a fall of £213m).This is the third consecutive quarterly fall with a combined total of £685m in lost revenue compared with the first three quarters of 2017.Higher Rate for Additional Dwellings (HRAD) receipts (i.e. just the additional 3% SDLT on second homes), has fallen by 12.7% since Q3 2017 and now stands at £454m.This is due to a 14.2% fall in HRAD transactions since Q3 2017, which now stand at 56,100.HRAD generated 19.0% of the total tax take.58,800 buyers have claimed First Time Buyers’ Relief (FTBR), amounting to relief of £142m.
HMRC’s report for Q3 will not come as a surprise to most, as there has been very little positive news of late and the possibility of a “no deal Brexit” still looms heavily over the UK.
Transactions have fallen by 4% on the previous annual quarter and now stand at 290,740. On a more granular level HRAD transactions (i.e. those which include the 3% additional duty), have been the hardest hit, with a fall of 14.2% to 56,100 from 65,400 in Q3 2017.
Naomi Heaton, CEO of LCP comments: “The fall in transactions reported by HMRC’s recent SDLT statistics is undoubtedly due to investors withdrawing from the market until they can see some light at the end of the Brexit tunnel. The toxic political climate and stagnating prices have brought ever-growing uncertainty to the residential market following several years of increased taxation.”
Heaton adds: “Receipts have followed suit with transactions and there have been falls across the board. The main rate of Stamp Duty, which excludes the 3% higher rate for second homes (HRAD) has seen a fall of 7.1%. HRAD receipts suffered the largest drop, falling 12.7%. The total revenue for Q3 therefore amounted to £2,392m, a fall of 8.2% on Q3 2017. Even if the amount of tax claimed under First Time Buyers’ Relief (FTBR), which the Exchequer would see as a tax ‘giveaway’, was added back, the total take would still be down by almost 3%.”
With the housing market in such a parlous state, it would seem somewhat imprudent for a sitting chancellor to raise further taxes on the residential sector. However, this is exactly what Phillip Hammond has done, proposing an additional levy of 1% on non-resident purchases in the most recent Budget.
The international buyer, of course, is politically a very easy whipping boy. The reality, however, is that for many new build developments in the UK’s most prominent cities, where price points are unaffordable for the domestic market, these investors represent a significant proportion of buyers. LCP’s November LCPAca Residential Index recorded a 21.0% premium in Greater London for new build versus older stock. With developers currently struggling and scaling back projects, this new tax will not be welcome, particularly as the higher-end stock enables these developers to build-out the much needed “affordable” end of the spectrum. It is also unlikely to have a material impact on tax revenues, given the recent trend of falling receipts alongside steadily rising tax rates.
First Time Buyers’ Relief, an initiative introduced to help many struggling to get on the housing ladder, however, has seen an increasing take up. A total of 58,800 transactions claimed FTBR in Q3 2018 which represents 21% of all transactions and equates to a tax giveaway of £142m. This represents a saving for the average purchaser of £2,415 at the crucial time when they are saving for their first deposit. As FTBR was introduced in November 2017, it is not yet possible to anticipate where it will find its level.
Heaton concludes: “HMRC Stamp Duty statistics do not paint a rosy picture of the UK housing market, with neither the buyer nor the Exchequer winning out. Until the government has a clear road map for Brexit we are unlikely to see increasing transactions and therefore increased revenues. Whilst it is highly unlikely that the Government will repeal any of their recent tax increases it certainly does not seem to be the time to implement more.”