Budget 2012: Major stamp duties rise for high end residential
Chancellor George Osborne has increased stamp duty on homes worth over £2 million to 7 per cent, levying a 15 per cent charge on similar properties bought by companies
Delivering his 2012 Budget, Osborne said Stamp Duty Land Tax on all residential properties worth more than £2million bought ‘into a corporate envelope’ would face a 15 per cent change starting today.
He said: ‘A major source of abuse – and one that rouses the anger of many of our citizens – is the way some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property.
‘I have given plenty of public warnings that this abuse should stop. Now I’m taking action.’
The announcement comes after a surge in prime London real estate which saw sales of properties worth more than £5 million in the capital rise 98 per cent in the first 11 weeks of this year.
The new rule could have a major impact on high-end residential schemes in London such as Rogers Stirk Harbour and Partners’ Neo Bankside and One Hyde Park.
Osborne added: ‘Let me make this absolutely clear to people. If you buy a property in Britain that is used for residential purposes, then we will expect stamp duty to be paid. That is the clear intention of Parliament.
‘I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules are found.’
Sidell Gibson Architects partner Geoff Barrett warned: ‘Stamp duty increases for properties above £2 million may have unintended consequences.
‘Although only a relatively small percentage of dwellings nationally fall into this price bracket, any hindrance to mobility within a fragile market could affect demand lower down the scale.’
Greg Lomas of Foster Lomas said: ‘From our point of view the budget could affect some clients, mainly those based offshore. It will be interesting to see how the new 15 per cent tax to be imposed on all properties over £2million which are bought via a company will affect the high end market. In the last few years an awful lot of foreign investment in high end property has come into the UK and especially central London. The figures in monetary terms are staggering (billions rather than millions) and it has kept the high end residential market buoyant.
He added: ‘The new 7 per cent tax will probably result in a reduction in transactions and potentially more investment in existing property, no bad thing for architects.
‘Its a clever move and one discussed recently in the Guardian by Simon Jenkins. Everyone is commenting on the reduction in the 50p rate but my gut feel is that these stamp duty rises will more than compensate for that lost revenue to the treasury.
‘The other point to note is that since the Arab spring, middle eastern property investment seems to have increased in central London. That may change now.’
CBRE head of residential research Jennet Siebrits said: ‘We endorse closing the offshore stamp duty loophole. Although stamp duty of 15 per cent on homes bought through corporate envelopes appears harsh, buyers can purchase through traditional means and pay 7 per cent. If stamp duty is paid on even a fraction more homes, it will generate significant revenue for the Treasury. It is unlikely to discourage overseas buyers in the medium to long term, as the prime London residential market is still seen as a safe haven for their money while the global economy is recovering.
‘However, we would have liked the Government to address stamp duty in a more holistic way instead of using it to score political points by targeting the top end of the market. The incremental stamp duty bands create unfair market distortions at each increase, so by making them more graduated the Government could implement a fairer system. It would also allow for higher and lower rates at both ends of the spectrum, which would be more effective than simply adding the 7 per cent band to homes over £2 million. Much like the stamp duty holiday, this is relatively inexpensive and could give a much needed boost to first-time buyers.’
James Crookes, investment partner at international law firm Pinsent Masons
‘It was widely expected that the Chancellor would clampdown on the perceived stamp duty land tax avoidance of wealthy homeowners, and that is exactly what he has done. No longer can you transfer a house into a company and then trade the shares so that you pay tax at 0.5% instead of 5%.
‘Thankfully, the Chancellor has not extended this charge to commercial property. This is sensible because there are often good reasons for commercial property to be traded by way of a special purpose vehicle. A property SPV is regularly used for investing in property and for the structuring development joint ventures.
‘The fact that the clampdown is limited to residential property shows that the Government understands the importance of maintaining the liquidity of commercial property in this country, particularly at the present time.”
Peter Chapman, head of rating and compensation at Cluttons
‘It is difficult to see precise measures which support the government’s view that the Budget is pro-growth and pro-business.
‘The real failure is not addressing empty rates today. These measures are uppermost in the mind of every tenant and owner of an empty building and by reintroducing the previous empty rate exemption this would remove the need to demolition these buildings and provide funds for their future redevelopment to stimulate growth. My fear is that the Chancellor has missed an opportunity here.’