Property transaction taxes in the UK are paid by the purchaser when a property is bought. There are currently three such taxes in operation in the UK:

  • Stamp duty land tax (SDLT) – in operation in England and Northern Ireland. SDLT in its current form was introduced across the UK in 2003.
  • Land and buildings transaction tax (LBTT) – in operation in Scotland since April 2015.
  • Land transaction tax (LTT) – in operation in Wales since April 2018.

The power to tax property transactions was devolved to the Scottish Parliament in April 2015, at which point it replaced SDLT with LBTT. This was followed by devolution to the National Assembly for Wales in April 2018, which replaced SDLT with LTT. SDLT is collected by HMRC, LBTT by Revenue Scotland and LTT by the Welsh Revenue Authority.

The tax paid largely depends on three factors:

  • The nature of the property – tax rates differ depending on whether the property is used for residential or commercial purposes (i.e. whether it is used exclusively as a dwelling or not). For a given price, the marginal tax rate faced is generally higher for residential properties.
  • The price of the transaction – tax rates are graduated so that more expensive properties face progressively higher tax rates. All three taxes follow a ‘slice’ design similar to income tax, whereby rates only apply to the part of a property’s selling price that falls within designated value bands. Compared to SDLT, both LBTT and LTT rates are to a large extent more progressive – they are lower for less expensive properties and higher for more expensive ones.
  • The characteristics of the purchaser – if a purchaser already owns a dwelling, they face at least a three percentage point surcharge on standard tax rates when buying additional residential properties – such as those intended to be rented out or used as second homes. For Scottish LBTT, the additional dwellings surcharge is four percentage points. In addition, there are many reliefs available to purchasers that reduce their tax liability. Some of those buying their first dwelling can benefit from a specific ‘first-time buyers’ relief’ if certain criteria are met. There are several other reliefs available such as for purchases by charities or registered social landlords. Finally, if a commercial property is leased rather than purchased outright, there is a different tax treatment based on the net present value of the lease.

SDLT, LBTT and LTT are relatively similar in design and since the ONS combines them when recording them in the public finances statistics, we have combined them on this page. Following the ONS approach, we also include the ‘annual tax on enveloped dwellings’ (ATED) in this measure. While not technically a transaction tax, it is a component of the compliance regime for SDLT. It raises less than £200 million a year.

In our latest forecast, we expect property transactions taxes to raise £12.5 billion in 2019-20. We expect 93 per cent of this to come from SDLT and ATED, with 4.7 per cent coming from Scottish LBTT and 1.9 per cent Welsh LTT. That would represent 1.6 per cent of all UK receipts and is equivalent to £440 per household and 0.6 per cent of national income, if averaged across the UK as a whole.

  • Latest forecast

    Our latest fiscal forecast was published in March 2019. Over the medium-term property transaction tax receipts are expected to rise by 30 per cent in cash terms between 2018-19 and 2023-24. This reflects both rising effective tax rates due to policy changes, fiscal drag and an expanding tax base as more properties are sold at higher average prices. In the short-run we forecast that receipts will fall in both cash terms and as a share of GDP. Growth in residential property prices and transactions are both expected to slow down in the coming years, before picking up again from 2020-21, while commercial property prices are expected to decline in the coming years before rebounding towards the end of the forecast period, whereas commercial property transactions are expected to rise at rates broadly in line with national income growth.

    More detail on our latest forecast and how it was revised relative to our previous forecast in October was provided in Chapter 3 of our accompanying Devolved taxes and spending publication.

    Relative to October, we have revised our property transactions tax forecast down by £0.5 billion a year on average from 2019-20 onwards. This is dominated by a lower forecast for residential stamp duty land tax in England and Northern Ireland and mainly reflects a lower house price inflation forecast. We have also revised receipts in 2018-19 down a little, which provides a lower base to which weaker expected growth rates are applied.

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  • Latest monthly data

    Property transaction tax receipts are generally higher over the summer months, reflecting the seasonal pattern of when people tend to move house. There is also a tendency for commercial property receipts to be higher at the end of financial reporting periods in December and March, often due to a small number of very large transactions.

    Monthly volatility can reflect several factors. These include one-off effects (such as policy implementation and forestalling, when the timing of transactions is affected by forthcoming policy changes) and several other timing effects such as whether Easter falls in March or April each year and the number of Fridays in a month (this is the typical day for the completion of property transactions and payment of the associated tax). Both 2016-17 and 2017-18 were distorted by policy changes, with forestalling ahead of the additional properties surcharge leading to higher receipts in April 2016 and lower receipts for several months afterwards. We published a working paper that explores this and other forestalling episodes. The announcement and implementation of a first-time buyer relief in November 2017 also distorted the monthly profile of receipts, reducing them in the remainder of 2017-18, and more recently changes to LBTT in January 2019 are also likely to have distorted the profile of receipts.

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  • Forecast methodology

    Forecast process

    The OBR commission forecasts of SDLT from HMRC for each fiscal event. The forecasts start by generating an in-year estimate for receipts in the current year, then uses a model to forecast growth in receipts from that starting point. We provide HMRC with economic forecasts that are used to generate the tax forecasts. These are scrutinised in a challenge process that typically involves two rounds of meetings where HMRC analysts present forecasts to the Budget Responsibility Committee (BRC) and OBR staff. This process allows the BRC to refine the assumptions and judgements that underpin the forecasts before they are published in our Economic and fiscal outlooks.

    We produce the Scottish LBTT forecast in-house using similar models to those used by the Scottish Fiscal Commission. Our Welsh LTT forecasts are produced on our behalf by Welsh Government analysts.

    Forecasting models

    HMRC produces the SDLT forecast using micro-simulation models. Administrative data on a historical base-year of residential and commercial transactions are projected forward using our forecasts for prices and transactions. These models calculate the average marginal tax rate on a transaction. They then apply a behavioural response to account for increases in the effective tax rate due to fiscal drag using our standard behavioural elasticities.

    Our LBTT forecast works in a similar way, but in the absence of full micro-level data we proxy the price distribution of the Scottish housing market using a log-normal function. We also apply a behavioural response to fiscal drag.

    For our LTT forecast we use a ‘price bins’ model operated on our behalf by the Welsh Government. It is conceptually similar to a microsimulation except that it models aggregate transactions within relatively small ‘bins’ rather than individual transactions, calculating the tax due on the average price in the bin, and then projecting that forward in line with our forecasts for prices and transactions. There are separate models for residential and commercial properties.

    The effects of past policy measures that have not yet been fully implemented are then added on to generate our final receipts forecast.

    Main forecast determinants

    The main economic determinants driving the forecast are those related to our forecast for the housing market:

    • Average residential house prices;
    • The number of residential property transactions;
    • Average commercial property prices;
    • The number of commercial property transactions;
    • CPI inflation (used in our ATED forecast); and
    • The GDP deflator (used to forecast the average value of commercial leases).

    Main forecast judgements

    The most important judgments in our property transaction tax forecasts relate to overall prospects for the housing market. Other key judgements include:

    • In-year estimate – Our estimate for receipts in the current year is determined by year-to-date performance of receipts and indications from HMRC’s internal receipts monitoring. The in-year estimate determines the base from which we use our model to forecast receipts growth. For property transaction taxes, many policy changes have distorted the base periods and have effects within year. The housing market is also quite seasonal, which needs to be adjusted for. For commercial property this judgement is often affected by large one-off payments from high-value transactions, where we need to determine the extent to which such payments should be assumed to repeat in future years.
    • Different trends in subsets of the property market – The top-end of the price distribution and buy-to-let purchases are much more heavily taxed than most owner-occupier transactions. We consider how trends in these fiscally important subsets of the property market might differ from the average captured in our economic forecasts, and adjust our receipts forecast as appropriate.

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  • Previous forecasts

    We have revised our property transaction tax forecasts substantially over time. We explained these changes in more detail in Box 3.1 of our October 2016 Forecast evaluation report. Our forecast has been volatile as it is difficult to map economy-wide housing market determinants to the true tax base because much of the revenue is concentrated in a relatively small number of transactions in the top-end of the housing market and buy-to-let purchases. There have also been significant policy changes that were not anticipated in earlier forecasts.

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  • Policy measures

    Since our first forecast in June 2010, UK Governments have announced 30 policy measures affecting our forecast for SDLT. The original costings for these measures are contained in our policy measures database and were described briefly in the Treasury’s relevant Policy costings document. For measures announced since December 2014, the uncertainty ranking that we assigned to each is set out in a separate database. For those deemed ‘high’ or ‘very high’ uncertainty, the rationale for that ranking was set out in Annex A of the relevant Economic and fiscal outlook.

    These policy costings include:

    • A new 7 per cent top-rate of tax on the entire value of the purchase over £2 million was announced at Budget 2012.
    • An anti-avoidance package and the introduction of ATED was also announced at Budget 2012. These operational measures generated substantially more revenue than originally expected, as discussed in our December 2014 EFO and an evaluation working paper.
    • Changes to marginal tax rates for residential properties were announced at Autumn Statement 2014. This change was discussed in a box in our accompanying EFO.
    • The introduction of the additional properties surcharge, which was announced at Autumn Statement 2015, alongside changes to some reliefs and exemptions announced at Budget 2016.
    • Changes to marginal tax rates for commercial properties were also announced at Budget 2016.
    • A relief for first-time buyers was announced at Autumn Budget 2017. This change was discussed in a box in our accompanying EFO.

    The Scottish Government has announced several measures since the introduction of LBTT in April 2015. Notable policy costings include:

    • An ‘additional dwellings surcharge’ that largely mirrored the surcharge announced by the UK Government in Autumn Statement 2015, but with an increase in the rate to four percentage points from January 2019.
    • A first-time buyer’s relief, again following the UK Government’s announcement in Autumn Budget 2017.
    • A new structure for commercial LBTT announced in December 2018 that raised tax on expensive transaction which was slightly offset by tax cuts to cheaper transactions.

    LTT was introduced by the Welsh Government in April 2018. Since then it has not yet made any significant policy changes.

    We have published the behavioural elasticities that were used in our previous policy costings and in our forecasts to account for fiscal drag. We assume that tax changes may lead to changes in the average price of a property and in the number of transactions. In a separate working paper we looked at forestalling – the shifting of transactions between periods to benefit from lower tax rates – which is another important behavioural response to changes in property transaction taxes. It occurs when Government’s pre-announce tax changes, allowing potential taxpayers to shift the timing of their transaction to benefit from lower tax rates. Most the examples we considered were pre-announced tax rises prompting purchasers to bring forward their transactions before the higher rates took effect.

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  • Ready reckoners

    ‘Ready reckoners’ show how our fiscal forecasts could be affected by changes in selected economic determinants. They are stylised quantifications that reflect the typical impact of changes in economic variables on receipts and spending. These estimates are specific to our March 2018 forecast and we would expect them to become outdated over time, as the economy and public finances, and the policy setting, continue to evolve. They are subject to uncertainty because they are based on models that draw on historical relationships or simulations of policy settings. More information can be found in the ‘Tax and spending ready reckoners’ spreadsheet we published alongside our 2017 Fiscal risks report.

    The table below shows that:

    • 1 per cent higher residential house prices would increase property transaction tax receipts by between £150 million and £175 million.
    • 1 per cent higher commercial property prices would increase property transaction tax receipts by less than £50 million.
    • The modelled relationship between transactions volumes and receipts is linear, so that a 1 per cent increase in transactions leads to a 1 per cent increase in tax receipts. In reality, the sensitivity of receipts to a 1 per cent change in transactions would depend on where in the price distribution the additional transactions were situated.

    Property transaction taxes: ready reckoners

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  • Boxset