Evaluation of Stamp Duty Land Tax First Time Buyers’ Relief

1. Evaluation of Stamp Duty Land Tax First Time Buyers’ Relief Anne Bolster, HMRC HMRC-ESRC International Conference on Taxation Analysis and Research 2 December 2011

2. SDLT and First Time Buyers’ Relief (FTBR) • SDLT charged on land and property transactions in the UK • FTBR applies from late March 2010 for 2 years (i.e. temporary) • Aim: Reduce up-front transaction costs and enable more FTB purchases • Conditions: Must be main residence and first buy for all purchasers

3. Evaluation Criteria • Impact of Affordability • Value for Money • Impact on housing market Issues • FTB additional purchases • Deadweight • Price • Indirect effects

4. Monitoring Take up • March 2010 – August 2011: • Transactions = 118,000 • Exchequer Cost £210m (£150 million in 2010/11)

5. Measuring the Number of Additional Purchases • Need a counterfactual to determine what would have happened in absence of relief • Difference in purchases for FTB relative to comparable group of non-FTB and FTB • Difference in Difference analysis of means • Time-series regression analysis controlling for economic conditions and seasonality

6. Difference in Difference Analysis

7. Difference-in-Difference Analysis

8. Evaluation – Data Sources • HMRC data on property transactions • Number and value of FTB relief claims for the treated group • Cannot adequately identify most of the untreated groups (e.g. pre-FTBR) • Council of Mortgage Lenders (CML) data on mortgages • Number and value of mortgaged transactions • Covers treated and all untreated groups by value and time period • Coverage differs, but highly correlated with HMRC data for treated group

9. Data Comparison - Correlation = 0.93 from June 2010

10. Difference-in-Difference Estimates – UK Level

11. Difference-in-Difference Estimates – LA Level

12. Difference-in-Difference Estimates – Sensitivity Analysis

13. Regression Analysis • National level equation Monthly dynamics are analysed for four buyer types: • FTB buying in the relieved range; • non-FTBs in the same price range; • FTBs purchasing property below £120,000; and • FTBs in the £300,001-£500,000 price range. [1]

14. Macroeconomic Gross Domestic Product Mortgage Interest Rates Total Credit lagged one period National level model Microeconomic Mortgage LTV ratios by buyer type Mortgage income multiples by buyer type 08-09 SDLT holiday <=£175k dummy Seasonal dummies Local Authority level model Evaluation Controls & Models • Time-varying covariates – comparison with DiD • Control trends over time common to all buyer types • Control trends that differ by FTB and non-FTB

15. Regression Analysis • National level equation • Monthly dynamics are analysed for four buyer types: • FTB buying in the relieved range; • non-FTBs in the same price range; • FTBs purchasing property below £120,000; and • FTBs in the £300,001-£500,000 price range. [1]

16. Evaluation Results 1

17. Evaluation Results 2 – LA Controls

18. Movements of Transactions across Thresholds

19. Movements of Transactions Across Thresholds • Level of FTB Transactions relative to non-FTB by Price Range – Comparing Change in Relative Difference After SDLT FTB Relief was Introduced

20. Impact on Price

21. Evaluation Results • Estimates of Additionality • 0% to 2% additional FTB transactions £125k-£250k • 0% to 1% additional FTB transactions over a wider range £120k-£300k • 50-70% of SDLT relief was capitalised in higher house price • Results stable and consistent across different model specifications • Value for Money • Only around 1,000-2,000 additional transactions • Exchequer cost of around £85k-£160k per additional transaction

22. Thank you Working Paper available on HMRC website: http://www.hmrc.gov.uk/research/sdlt-ftb-workingpaper.pdf