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24

9

Impact on stamp duty revenue

Another consideration when estimating the potential proceeds from a mansion tax is the indirect impact

on other sources of revenue. For example, a mansion tax is likely to have a significant negative impact on

prices at the top end of the housing market, in London especially. As this disturbance in both prices and

number of transactions at the high end of the market feeds through to lower value properties, revenue

collected through stamp duty charges diminishes.

In the most recent tax year a total of £6.5bn was collected from residential properties in stamp duty

land tax revenue. Some £1bn of this came from sales of residential properties worth over £2m. Stamp

duty revenues are likely to diminish as the mansion tax deters buyers from the high-value market

segment, driving down prices. This is especially true considering that in 2016 84% of affected homes are

in London (up to 87% in 2020), the region that in the 2013-2014 tax year alone accounted for 42% of all

residential stamp duty revenue.

In order to estimate the magnitude of the loss in stamp duty, we reduce the forecasted 2016 average

prime property price by the present value of future mansion tax payments. We then project the stamp

duty revenue based on the higher property prices expected if the mansion tax proposal does not pass

and based on the prices impacted by the mansion tax. The estimates also take into account the proposed

policy’s impact on number of transactions at the top of the market. In 2015, a higher number of

transactions generates increased activity as homeowners make buying and selling decisions after the

May 2015 election, which somewhat offsets the impact of lower prices. However in 2016 and beyond

both a decrease in prices and a decrease in transaction volumes (made more substantial by impacted

homeowners with wages less than £42,000 choosing not to move) contribute to increasing losses in

stamp duty revenue.

Over the next 6 years, nearly £2bn in stamp duty revenue could be lost if the mansion tax proposal

passes. The estimated loss of stamp duty revenue is conservative, as only the impact at the top of the

market is considered. It is probable that lower prices would feeding through to lower market segments,

also impacting receipts from lower stamp duty brackets.

Table 16: Stamp duty revenue from residential property over £2m, 2015-2020

Source: Knight Frank PCL index, Land Registry, Cebr analysis

Losses in stamp duty revenue of this magnitude bring into question the sustainability of the proposed

policy. As the incurred yearly losses rise year to year in the forecast period, it is likely that they will

continue to increase in the years beyond 2020. Considering the many unknowns surrounding estimation

of revenues received from the proposed mansion tax e.g. property value bands, cost of implementation,

number of homeowners qualifying for an exemption etc.it is conceivable that stamp duty losses will be

equal to or even greater than mansion tax proceeds in later years.

Stamp duty collected without

mansion tax

Stamp duty collected with

mansion tax

Loss in stamp duty

revenue

2015

1,896,975,640

1,796,494,482

100,481,158

2016

1,999,608,893

1,656,164,765

343,444,128

2017

2,099,589,338

1,755,375,291

344,214,047

2018

2,204,568,805

1,859,621,502

344,947,303

2019

2,655,503,333

2,262,574,464

392,928,869

2020

2,814,833,533

2,421,014,761

393,818,772

Total

13,671,079,543

11,751,245,265

1,919,834,277

© Centre for Economics and Business Research