Fall in SDLT transactions attracting the HRAD surcharge

The first quarter of 2025 appears to have been the busiest quarter in the English and Northern Irish residential property market in over two years, based on the number of chargeable transactions reported in the government’s latest stamp duty land tax (SDLT) statistics. Q1 2025 was also the first full quarter since the higher rates for additional dwellings (HRAD) SDLT surcharge was increased to a 5% rate. Notably, despite the increase in number of overall chargeable transactions, which was perhaps driven by people trying to lock in the temporarily extended SDLT bands, there was a 6% decrease in HRAD transactions when compared to Q4 2024, indicating evolving dynamics within the real estate sector.

Transactions which are subject to the HRAD surcharge include the purchase of additional residential properties by individuals, such as second homes or buy-to-let investments, and purchases of residential properties by certain corporate bodies and trusts. These transactions play a crucial role in the overall SDLT receipts, significantly contributing to the revenue collected by HMRC.

In Q1 2025, the number of HRAD transactions fell by 9% when compared to Q1 2024 or 6% when compared with Q4 2024. An overall decline in HRAD transactions aligns with expectations following the increase in the HRAD surcharge from 3% to 5% effective from 31 October 2024. However, it is tough to draw direct comparisons on recent periods, due to a number of significant factors including the falling cost of borrowing, the sunset of a temporary extension to SDLT bands, and transactions being driven by potential uncertainty leading up to the 2024 General Election and Autumn Budget.

Based on these statistics, the increase in the HRAD surcharge alone did not seem sufficient to deter a lot of buyers from purchasing properties, although it’s worth noting that a lot of purchases that completed in Q1 2025 may have been ongoing since prior to the date that the HRAD surcharge was increased. Where contracts had exchanged prior to 31 October 2024, purchasers were still able to benefit from the 3% surcharge rate on completion.

Looking forward, the extent of the increased surcharge should now be better understood at the time of people entering into property transactions. The increased surcharge, paired with the sunset of the temporary extension to the SDLT thresholds with effect from 1 April 2025, may contribute to a reduced number of HRAD transactions going forward. The statistics from Q2 2025 will provide further insights into the ongoing impact of SDLT policy adjustments on HRAD transactions and the broader real estate market. It will be interesting to see if the increase to the HRAD surcharge has pushed taxpayers a step too far on the Laffer Curve.