In the Budget, Chancellor George Osborne announced that a new 7% stamp duty charge will be levied on properties sold for over £2 million. The Chancellor also increased the stamp duty on residential properties over £2 million bought through an off shore company to 15%. Both increases will take effect from midnight tonight.
In reaction to the announcement, Dawn Carritt, director of national upmarket property agents Jackson- Stops & Staff, said:
“The impact of the 15% stamp duty for off shore companies buying in London is having an immediate impact as within just a couple of hours one Far Eastern investor has decided to withdraw from a purchase in Central London. How many more will decide that this makes London property less attractive as an investment will only become evident in the next few weeks. Is this the start of the delicate balance in the market being upset?
“The new 7% stamp duty is going to have the greatest impact on properties just on the cusp of the £2 million threshold. Whilst a buyer paying £1,999,000 would expect to pay £99,950 in stamp duty tip over the threshold and purchase a property for £2,001,000 and the duty jumps up by an extra £40,000.
“For those looking to purchase multi million pound properties the extra 2% may not be quite so significant and when viewed as part of the long term investment could be recouped, especially in the case of the prime London residential market where prices have risen steadily over the past few years.
“The new rate of duty could well have a significant bearing on those looking to go into farming. Land prices have risen significantly over the last five years yet this has not been reflected in the profits working farmers are able to make. Even a smallholding with a modest farmhouse could well fall into the new stamp duty rate and the £140,000 which would have to be paid on the purchase of a small working farm represents a significant slice of what could otherwise be working capital. For those with larger holdings of 200 – 250 acres or more with a farmhouse and buildings the new rate of tax is as inevitable as it is unwelcome. The details of the Chancellor’s proposals have yet to be published and hopefully due consideration will be given to the impact such a rise could have on British farmers.
Avoidance of stamp duty
“The well trailed announcement that will stop purchasers buying through an offshore company comes as no surprise and is unlikely to have a significant impact on the residential market. There were some that regarded this as a means of mitigating tax and others who felt this was tax avoidance. The closing of the loophole may well deter some investors in putting their money into UK property the actual number of transactions this relates to each year is unlikely to be large enough to have a noticeable impact on the market.
“The increase in stamp duty will inevitably encourage financial advisers to try and find other avenues to reduce the impact of taxation for their clients and in many respects the Chancellor is left playing cat and mouse with private client tax advisers constantly looking for ways to mitigate the amount of tax their clients are required to pay and the Chancellor blocking those “escape routes” as they become exploited.
“There is a threat that if the top of the market is squeezed too hard through taxation it will start to impact the delicate balance of the residential property market, certain areas have remained quite buoyant over the last few years and this has filtered out to the neighbouring regions and price brackets. With the lower end of the market severely restricted by the lack of mortgage funding being made available if movement at the top of the market is snuffed out the fragile growth that is predicted for 2012 could well stall.
“As the Chancellor has already indicated he is keen to see better use of land and an increase in the rate of building the increased level of stamp duty which would impact on large site acquisitions but could well give developers the incentive to invest in the smaller slightly more difficult sites, where the capital investment is under £2 million, and build smaller houses. The new 7% rate will, on the other hand, make it less attractive for developers to purchase large houses in big gardens with a view of knocking them down and building two properties on the plot where the resale values of each property tops the £2 million mark as such a scheme would attract the extra stamp duty on both the acquisition and the resales.”