Stamp duty reform delay cost £300m in lost tax revenue, says watchdog

The way changes to property tax have been handled could have cost the Exchequer hundreds of millions of pounds, according to the budget watchdog.

More householders than previously thought were able to avoid tax hikes introduced by the former chancellor George Osborne by completing transactions before the changes came into force, the Office for Budget Responsibility found.

The four-month delay between announcing and implementing a 3% stamp duty surcharge on second homes, which came into force in April this year, cost an estimated £300 million in lost tax revenue.

In an indication of the way the transaction process could be accelerated when faced with a looming tax hike, the OBR analysis found that the cost to the Exchequer of changes to stamp duty announced in the 2014 Autumn Statement were the equivalent of almost £500,000 an hour as people scrambled to take advantage of an 11-hour window before the measures were implemented.

The OBR paper concluded: "The longer taxpayers are given to arrange the timing of their taxable activities to minimise the tax they will have to pay, the higher the likely cost of forestalling.

"And high-income or wealthier individuals are more likely to have the resources and flexibility to plan and act upon such tax-reducing shifting of taxable activities."

The paper found that Mr Osborne's decision to announce the 3% stamp duty surcharge for purchasers of additional properties in late November 2015, but not to implement it until the start of April 2016, had led to around 40,000 transactions being brought forward to beat the tax increase, with an average saving of around £7,560.

The OBR had forecast the cost of forestalling would be around £50 million but the true cost was around six times that amount at £300 million.

"The latest evidence suggests that we significantly underestimated the number of transactions that would be brought forward," the OBR said.

In a striking example of how people were able to take advantage of even the smallest window, the paper examined the 2014 Autumn Statement change to residential stamp duty which saw it move from a "slab" rate based on the entire value of the property to a "slice" system with different thresholds.

That increased the tax liable on properties above £937,500 prompting a spike in the number of high-value transactions..

Mr Osborne announced the change at shortly after 1pm, with a transitional period running until midnight for people to exchange contracts in order to take advantage of the existing tax regime.

The paper found that four times as many transactions took place on Autumn Statement day as on the preceding Wednesdays - an equivalent of around 100 extra transactions, around half of which were over £1.5 million.

The total tax cost was around £5 million, almost £500,000 an hour, the OBR said.