Repeated increases in stamp duty have taken a heavy toll on high-end London property sales, with transactions in Britain’s two most expensive boroughs falling by 42 per cent over the past decade.
According to new analysis by Savills, deals in Kensington and Chelsea and Westminster have slumped 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 risk reducing overall tax receipts. Savills data suggests that the average effective stamp duty rate in these prime 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 is a stark illustration of the so-called Laffer curve in action. Conceived by the American economist Arthur Laffer, this curve suggests that, while higher tax rates can increase revenues initially, beyond a certain threshold receipts start to drop as taxpayers alter their behaviour or exit the market. Lucian Cook, the Savills director behind the analysis, said: “They can only push things so far without having a detrimental impact on tax revenues.”
George Osborne, then Chancellor, set the trend in 2014 by raising rates on higher-priced homes. Subsequent surcharges for second homes (introduced in 2016) and for foreign buyers (added in 2021) compounded the impact on prime central London. These measures have resulted in a staggering stamp duty bill. A UK resident purchasing a £10m main home in 2023–24 would face charges of around £1.1m in duty, rising to £1.8m for an overseas buyer picking up a second home.
Yet these figures do not even reflect Ms Reeves’s more recent Budget announcement to add another two percentage points to the additional homes surcharge. Estate agents warn this will further erode the appeal of London’s most exclusive neighbourhoods to big-ticket buyers.
In 2010–11, transactions in Kensington and Chelsea and Westminster accounted for 9.5 per cent of all London sales. By 2023–24, that proportion had dropped to 5.9 per cent, highlighting the scale of the decline. Despite this, sales in these two boroughs alone still generated £1.2bn in stamp duty receipts in 2023–24, amounting to nearly a tenth of the £14.8bn total collected across England and Northern Ireland.
High rates of stamp duty, coupled with Ms Reeves’s plans to abolish the favourable non-dom tax regime from April 2025, mean prices in prime central London (PCL) are expected to fall next year, according to Savills. Lucian Cook forecasts a 4 per cent drop in PCL property values.
Even so, this market remains markedly more expensive than the rest of the capital. The average property price in Kensington and Chelsea in October 2024 stood at £1.1m — nearly double London’s average of £590,000. Sales at the very top end commonly exceed £10m, attracting equally eye-watering stamp duty bills.
The Treasury has become heavily dependent on the top tier of the housing market for stamp duty revenues, and experts warn that prolonged suppression of transactions could ultimately undermine this income stream. Mr Cook said: “They need to be quite careful about that, given the extent to which their tax take has become very, very dependent on the health of the very top end of the market.”
As Britain’s high-end buyers weigh up tax bills that can stretch into seven figures, there are questions over whether stamp duty policy is nearing its revenue-breaking point. With prime London housing transactions continuing to shrink, policymakers may find that the Laffer curve’s cautionary tale on the dangers of overtaxation is starting to ring true in the capital’s swankiest postcodes.
