Repeated increases in stamp duty have had a significant impact on high-end property sales in London, with transactions in Britain’s two most expensive neighborhoods falling by 42 per cent over the past decade.
According to new analysis by Savills, deals in Kensington, Chelsea and Westminster fell from 10,665 in 2013-14 to around 6,200 in 2023-24.
The figures also provide a warning sign for Rachel Reeves as punitive stamp duty rates threaten to reduce overall tax revenues. Savills data suggests that the effective average stamp duty rate in these key boroughs has almost doubled over the past ten years, from 5.4 per cent in 2013-14 to 10.1 per cent in 2023-24.
It’s a striking example of the so-called Laffer Curve in action. This curve, envisioned by American economist Arthur Laffer, indicates that while higher tax rates may initially increase revenues, after a certain threshold revenues begin to decline as taxpayers change their behavior or exit the market. “They can only push things so far without having a detrimental impact on tax revenues,” said Lucian Cook, the Savills director responsible for the analysis.
George Osborne, the then Chancellor of the Exchequer, set the trend in 2014 by raising interest rates on higher-priced homes. Subsequent surcharges for second homes (introduced in 2016) and for foreign buyers (added in 2021) have exacerbated the impact on prime central London. These measures have resulted in a staggering stamp duty bill. A UK resident buying a main home worth £10 million in 2023-24 will face charges of around £1.1 million, rising to £1.8 million for an overseas buyer buying a second home.
However, these figures do not even reflect Ms Reeves’ recent budget announcement adding another two percentage points to the household surcharge. Estate agents warn this will further erode the appeal of London’s most exclusive neighborhoods for big-ticket buyers.
In 2010-11, transactions in Kensington, Chelsea and Westminster accounted for 9.5 per cent of total London sales. By 2023-24, this percentage had fallen to 5.9 percent, highlighting the magnitude of the decline. Despite this, sales in these two regions alone will still generate £1.2 billion in stamp duty receipts in 2023-24, amounting to almost a tenth of the total £14.8 billion raised across England and Northern Ireland. .
Rising stamp duty rates, coupled with Ms Reeves’ plans to scrap the favorable tax regime for non-residents from April 2025, means prices in prime central London (PCL) are expected to fall next year, according to Savills. Lucien Cook expects a 4 percent decline in PCL property values.
However, this market remains significantly more expensive than the rest of the capital. The average property price in Kensington and Chelsea in October 2024 was £1.1 million – almost double the average London property price of £590,000. Sales at the top end typically exceed £10 million, attracting equally eye-catching stamp duty bills.
The Treasury has become too reliant on the top tier of the housing market for stamp duty revenue, and experts warn that suppressing transactions for too long could ultimately undermine this income stream. “They have to be very careful about that, given the extent to which their tax collections have become very dependent on the health of the top end of the market,” Cook said.
As high-end buyers in Britain weigh tax bills that could stretch into seven figures, there are questions about whether stamp duty policy is approaching a revenue crash point. As luxury housing transactions continue to contract in London, policymakers may find that the cautionary tale of the Laffer Curve about the dangers of over-taxing is beginning to emerge in the capital’s most luxurious postcodes.