We have all come to expect taxes to go up year-on-year and appear to have accepted that the word ‘tax-cuts’ has been consigned to the history books. True to form, the Chancellor of the Exchequer has found yet another way of raising additional funds and has proposed in his autumn statement an increase in Stamp Duty Land Tax (SDLT) on second homes and buy-to-let properties. SDLT is the property tax which home owners pay on the purchase of real estate. The rather quaint name derives from the fact that paper stamps were indeed once attached to the property deeds to evidence that the tax had been paid.
A 3% surcharge above current SDLT rates is due to apply from April 2016 (which is when the new financial year traditionally starts in the UK) and will also capture foreign investors. The changes mean that the tax rate on the purchase of a property valued at between £125,000 and £250,000 would more than double from 2% to 5% of property value. The stamp duty surcharge is expected to raise almost a billion pounds by 2021 and the government proposes to reinvest ‘some’ of that money in local communities in London and places like Cornwall which are being priced out of home ownership. Apart from raising revenue, the move is also intended to help first time home buyers climb onto the property ladder by reducing competition for a limited pool of properties from those who already own property.
That sounds fair enough in principle. But does it stack up? If, as is generally accepted, there is a need for something to be done about the chronic housing shortage in the UK, and for some reason the answer has not to date been to build enough new housing, it does not immediately make sense to penalise those who aspire to become private landlords with the objective of letting out properties to tenants. The increased up-front investment required to acquire a buy-to-let property will more likely simply result in higher rents being charged to recoup that increased outlay. Measures such as a tax on empty housing owned by property speculators would go much further in addressing real housing needs.
While the government is yet to consult on the policy detail, as the proposals stand, the increased tax will not be payable by corporate property developers. There must also be a question mark over how easy it will be to police second home ownership, for example, if the purchaser immediately declares the property to be his principal residence.
Be that as it may, looking at how busy our residential property team here at Hunters is, the announcement certainly appears to have the unintended side effect of creating a mini housing bubble as investors rush to beat the April deadline.
This article was originally published in Discover Germany and can be found here.
Hunters incorporating May, May & Merrimans