Repeated increases in stamp duty have taken a heavy toll on luxury property sales in London, with transactions in Britain’s two most expensive boroughs falling by 42 percent over the past decade.
Deals in Kensington, Chelsea and Westminster have fallen from 10,665 in 2013-2014 to around 6,200 in 2023-2024, according to new analysis from Savills.
The figures are also a warning sign for Rachel Reeves as high stamp duties threaten to reduce overall tax revenue. Savills data shows that the average effective stamp duty in these boroughs has almost doubled over the past decade, from 5.4 per cent in 2013-2014 to 10.1 per cent in 2023-2024.
It’s a clear illustration of the so-called Laffer curve in action. This curve, coined by American economist Arthur Laffer, suggests that while higher tax rates may initially increase revenues, above a certain threshold revenues begin to decline as taxpayers change their behavior or exit the market. Lucian Cook, the Savills director behind the analysis, said: “They can only push things so far without having a detrimental effect on tax revenues.”
George Osborne, then Chancellor, set the trend in 2014 by increasing rates on more expensive homes. Subsequent allowances for second homes (introduced in 2016) and for foreign buyers (added in 2021) increased the impact on prime central London. These measures have resulted in a staggering stamp duty law. A UK resident purchasing a £10 million main home in 2023-2024 would face a tax burden of around £1.1 million, rising to £1.8 million for an overseas buyer picking up a second home .
Yet these figures do not even reflect Ms Reeves’ more recent budget announcement to add a further two percentage points to the additional housing allowance. Estate agents warn this will further erode the appeal of London’s most exclusive neighborhoods for big-ticket buyers.
In 2010-2011, transactions in Kensington, Chelsea and Westminster accounted for 9.5 percent of all sales in London. Between 2023 and 2024, that share had fallen to 5.9 percent, underscoring the magnitude of the decline. Despite this, sales in these two boroughs alone still generated £1.2 billion in stamp duty in the 2023-2024 period, representing almost a tenth of the total of £14.8 billion raised in England and Northern Ireland .
High stamp duty rates, coupled with Ms Reeves’ plans to abolish the favorable tax regime for non-dominant countries from April 2025, are expected to fall next year, according to Savills. Lucian Cook predicts a 4 percent decline in the value of PCL properties.
Yet this market remains considerably more expensive than the rest of the capital. The average property price in Kensington and Chelsea was £1.1 million in October 2024 – almost double the London average of £590,000. Sales at the top end of the market typically exceed £10 million, generating equally eye-watering stamp duty.
The Treasury has become heavily dependent on the top end of the housing market for stamp duty revenue, and experts warn that prolonged suppression of transactions could ultimately undermine this revenue stream. Cook said: “They have to be very careful about that, given the extent to which their tax revenues have become very, very dependent on the health of the very top end of the market.”
As Britain’s luxury buyers weigh tax bills that could reach seven figures, questions are being raised about whether the stamp duty policy is nearing its revenue breaking point. As house transactions in London’s best properties continue to shrink, policymakers may conclude that the Laffer curve’s cautionary tale about the dangers of overloading is also starting to hold true in the capital’s poshest postcodes.