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News Release

London

Government Gifts for the Festive Season

JLL responds the Stamp Duty reforms announced in the Autumn Statement


London, 4 December 2014 - Yesterday we finally received the long-called for revision to the structural design of Stamp Duty, part of a wide package of perceived giveaways from the Chancellor George Osborne. The new marginal rates are now levied on the incremental gain in value above new thresholds, as summarised in the table below. This will avoid some of the market inefficiencies that previously occurred around Stamp Duty bands, as we note recently in The Times.

The Coalition's announcements put Labour in a difficult spot. Perseverance with Mansion Tax proposals will smack of hysterical bloody-mindedness, while an obvious u-turn with claims of 'we won' will ring very hollow. Early indications suggest the former is more likely, weakening opportunities for improved market certainty. Ultimately the market will adjust, and despite claims to the contrary, the savings for the mainstream are pretty modest. Average price rises in 6 of the last 9 quarters nationally and 10 of the last 11 quarters in London have outpaced these gains.

At the top end, where transaction costs have just become even steeper, there could perversely be a recovery in market activity. This market has been plagued by Mansion Tax uncertainty for most of 2014 and if the Autumn Statement does weaken Labour’s resolve to pursue this poorly-designed tax, we may well see a moderate improvement in Prime demand during the first half of next year. Despite headlines of trophy property prices with eye watering Stamp Duty charges, the vast majority of activity in Prime London occurs at lower average levels where the changes are more costly, but not more significant than the implied net present value of a proposed Mansion Tax charge. For example, a £1.5 million property will incur a net Stamp Duty increase of £18,750, or 1.25%

These changes are all made under the banner of ‘fairness’, where a progressive tax system ensure that the wealthy pay more. It is worth placing this in context. Prior to April 6, 2011, properties valued at over £2 million incurred a 4% Stamp Duty liability, or £80,000 just above this threshold. On that date this was increased to 5% (or £100,000) and the following year increased to the even more punitive 7% above £2 million (£140,000). That property today now incurs a Stamp Duty charge of £153,750, roughly a 92% increase over 3.5 years. This aggressive push to burden the top end of the market with a greater proportion of Stamp Duty revenue has largely been absorbed, but there is something decidedly unfair about such a dramatic rise in the tax burden over such a short period of time.