Tax by tax, spend by spend

Property transaction taxes

This Forecast in-depth page has been updated with information available at the time of the March 2024 Economic and fiscal outlook. We are aware of a technical issue with our tableau charts across the site. Access the data from our March 2024 forecast supporting spreadsheets directly.

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;
    • Land and building transaction tax (LBTT) in operation in Scotland; and
    • Land transaction tax (LTT), in operation in Wales.

We produce forecasts for the devolved property transaction taxes, as well as SDLT. Land and building transaction tax replaced SDLT in Scotland with effect from April 2015, while land transaction tax came into effect in Wales in April 2018. More detail is available on our Scotland, Wales and Northern Ireland page.

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.
    • The characteristics of the purchaser – if a purchaser already owns a dwelling, they face at least a 3 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. From 1 April 2021 non-UK residents face an extra 2 per cent surcharge when paying SDLT.

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 the ONS combines them when recording them in the public finances statistics. We also combined them in our March 2024 forecast.

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 around £100 million a year.

In 2024-25 we estimate that property transaction taxes will raise £14.0 billion. This represents 1.2 per cent of all receipts and is equivalent to around £480 per household and 0.5 per cent of national income.

  Forecast methodology

Forecast process

The OBR commissions forecasts of property transaction tax receipts from HM Revenue and Customs for each fiscal event. The forecasts start by generating an in-year estimate for receipts in the current year, then use 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 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.

More detail on the forecasts for LBTT and LTT is available on the Scotland, Wales and Northern Ireland pages of our website.

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.

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; and
    • CPI inflation (used in our ATED forecast).

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.

  Back to top

  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. This is 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 included in earlier forecasts.

The Covid pandemic and the subsequent introduction of property transaction tax holidays led to significantly reduced receipts in 2020-21 relative to recent forecasts. Our forecasts following the start of the pandemic were initially progressively revised up due to strength in the property market. Our most recent forecasts have been revised down in the near term thanks to the downturn in the property market and the temporary rise in thresholds.

  Back to top

  Policy measures

Since our first forecast in June 2010, governments have announced a number of policy measures affecting our forecast for SDLT (more details on LBTT and LTT are available here). 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 Chapter 3 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 of residential properties over £2 million was announced at Budget 2012.
    • An anti-avoidance package and the introduction of ATED were also announced at Budget 2012. These operational measures generated substantially more revenue than originally expected, as discussed in Box 3.1 of our December 2014 EFO and an evaluation working paper.
    • A change to the system of marginal tax rates for residential properties was 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.
    • A change to the system of marginal tax rates for commercial properties was 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.
    • An additional 2 per cent surcharge for non-residents who purchase a property in the UK from 1 April 2021, announced at Spring Budget 2020.
    • In July 2020, a stamp duty “holiday” was announced – raising the nil-rate threshold temporarily from £125,000, to £500,000 until April 2021.
    • In March 2021, this was extended for three months until June, and then for a further three months at the lower value of £250,000 until the end of September 2021.
    • The September 2022 Growth Plan announced a rise in the residential property nil-rate threshold to £250,000, with the threshold relief for first-time buyers rising to £425,000. This was later made temporary in the Autumn Statement 2022, which announced that the thresholds would return to their previous levels from March 2025.

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 governments pre-announce tax changes, allowing potential taxpayers to shift the timing of their transaction to benefit from lower tax rates. Most of the examples we considered were pre-announced tax rises prompting purchasers to bring forward their transactions before the higher rates took effect.

  Back to top

  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 2023 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 ‘ready reckoners’ spreadsheet available on our Data page.

The table below shows that:

    • A 1 per cent increase in residential house prices would increase stamp duty land tax receipts by about £0.2 billion by the end of the forecast.
    • A 1 per cent increase residential property transactions would increase stamp duty land tax receipts by about £0.1 billion.
WordPress Data Table

  Back to top

Other taxes