Calculating winners and losers on Budget changes
Will the new stamp duty rate dampen the market for properties over £2m or will buyers be happy to pay another £40,000-plus? Sharon Dale reports.
WHEN the Budget bombshell revealed a new seven per cent rate of stamp duty for homes over £2m, Andrew Williams barely batted an eyelid.
The previous top rate was five per cent on homes over £1m so the Chancellor effectively added another £65,000 to the cost of buying Mr Williams’s beautiful Old Rectory in Brandsby, near York. The house is priced at £3.25m and under the old rules, stamp duty would have been £162,500. It will now be £227,500.
“Firstly, stamp duty doesn’t affect me because I am not paying it, the buyer is, and secondly you have to put it in context. If someone is rich enough to pay £3.25m then another £65,000 isn’t going to make that much difference to them,” says Mr Williams.
Furthermore, he believes that taxing the buyers of top property is a good way of increasing Government revenue.
“The Government, whichever political party is in power, has to raise taxes and this isn’t a bad way of doing it. It affects relatively few people.”
Toby Milbank, of Strutt and Parker, Harrogate, agrees that another two per cent won’t deter the wealthy, though the announcement did cause a panic for one buyer.
“He was due to exchange contracts with our client on Friday morning. We checked the new rules and the stamp duty rise came into effect at midnight on Thursday. We managed to rush the exchange through so he could save the two per cent.
“That was understandable, but in general I can’t see the super rich and high net worth individuals being put off by the increase. Another £40,000-plus sounds a lot but it isn’t to some people.
“It might be a different story for someone who has steadily climbed the ladder and saved all their lives to finally buy that big house and they’re stretching themselves with a big mortgage. But, like most changes, we’ll get used to the new rate and it will become the norm. It’s like when interest rates rise. There’s a flurry of panic and then people accept it and get on with life.”
What will create more pain for top-end buyers is the clampdown on property tax avoidance.
Those who put properties into companies will now face a new 15 per cent stamp duty. Someone buying a home worth more than £1m through an offshore company previously paid five per cent.
From April next year, companies that own properties worth more than £2m will face an annual levy, yet to be decided, and there will be capital gains tax of 28 per cent when they sell.
Lucian Cook, director of Savills Research, says: “The antiavoidance measures are a triple whammy. An increase in stamp duty on corporate envelopes should be enough of a deterrent alone. The threat of both an annual levy and capital gains tax on exit look like aggressive antiavoidance that is retrospective in nature and this could set alarm bells ringing.
“There are potentially two saving graces: the annual charge is to be subject to consultation and won’t come in until next year and the same applied to the capital gains tax charge. There may well be a 12 month window for owners to put their high-value houses in order.”
Lucian believes the seven per cent rate and anti-avoidance measures could stifle important overseas investment. The increase to seven per cent takes London from the seventh to the fourth most expensive city for purchase taxes. Paris, (6.5 per cent) Tokyo (5.3 per cent) and Hong Kong (5.3 per cent) are all cheaper. Singapore has the highest purchase tax at 13.1 per cent. In Sydney it is 11.5 per cent and in Mumbai 10.6 per cent.
While the UK position in the rankings could make overseas investors think twice, in Yorkshire the most immediate concern is for sellers who have property on the market for just over £2m.
Edward Hartshorne, of Blenkin and Co, York, says: “Houses that would once have sold for one hundred or two hundred thousand pounds over £2m are now very unlikely to sell at a price beyond this new threshold. Unlike in London, the money in North Yorkshire is hard earned and people will understandably fight their corner for a fair deal.”