Changes in stamp duty- Budget 2012
The Chancellor, George Osbourne, announced a new tax on properties worth more than £2 million when purchased through a company. This stamp duty land charge tax will add 15% to the purchase price of a property. And for individuals, a tax of 7% will be added on all properties purchased for more than £2 million. It is worth noting that a tax of 5% was added to properties worth more than £1 million just about a year ago. The figure has now changed to 7% and the threshold increased to £2 million.
First let us consider that these taxes are essentially disproportionate to the whole of the UK- in other words, the majority of properties worth more than £2million tend to be in the London area. Any estate agent will be quick to point out that the buyers who will be hardest hit are in fact the overseas buyers who make up the greatest proportion of buyers in the London property market.
There is a real fear amongst owners and sellers that their properties will in fact be devalued by the increase in taxes (the sums are significant-anyone buying a property for £2 million will automatically have to pay £140,000 in stamp duty). Prices therefore will need to be re-adjusted downwards to take into account these increases (or loss to the owner). Make no mistake, both buyer and seller could be the losers: even though the buyer must pay the stamp duty, owners could well be faced with lower offers as buyers discount the stamp duty from the asking price. As such, property prices could well suffer.
My own thoughts on the matter are not too onerous for overseas buyers who historically, in spite of increases in price or tax, manage to buy anyway. Their rationale is basically to sink their cash in the London property market as they consider it safer (and historically has proven to be in the long term) than any other investment vehicle. And let’s be honest- many overseas buyers consider the London property market less risky and speculative and buy ‘for their grandchildren’.
On a cheeky note I would add that overseas buyers are responsible for ‘capital flight’ whereby they see their money devalued in their own countries- example the Euro crisis and haemorrhage cash out of their own home turf and into London. There was a recent buying splurge by Italians and Greeks, supposedly, keen to avoid the crisis at home.
The real losers of these increased taxes will be the local UK population who will find it harder to ‘trade up’ to a bigger property and secondly, will have to weigh the pros and cons of paying a heftier stamp duty as well as inheritance tax (which at 40% is even more debilitating) upon death.
Many overseas buyers buy as investment and do not necessarily rent out or seek to obtain a return on their properties. In other words, many properties lie empty. This is a real shame. It is said that the lights remain out in most buildings in London every night.
Finally, those purchasers who reside overseas and register the property in the name of a company, will now be forced to pay a higher price for their privacy.