Legal and economic incidence of a tax.

From The Evening Standard:

London homeowners are being forced to make dramatic price reductions to sell their properties as George Osborne’s stamp duty shake-up continues to send shockwaves through the market, the Evening Standard has learned.

Nearly one in five homes on the market for more than £1 million has had its price cut in the latest evidence of a slow down since the Chancellor’s new regime came into force.

Yup.

A tax is born by whoever is less price sensitive – the supplier or the customer. So a tax that goes anywhere near land and buildings is always mostly* borne by the landowner and ultimately by ‘the land’ rather than ‘the buildings’.

It does not matter a jot that legally, the purchaser is obliged to pay it. Any hike in such tax just results in lower selling prices or lower headline rents.

Here endeth.

* Transaction taxes like SDLT or CGT do result in lower supply and hence slightly higher prices/rents, so a small part of these is borne by the customer. Annual recurring taxes are borne entirely by the landowner.