Despite the fact that the government has already increased stamp duty on properties worth more than £2 million, in effect targeting the London property market, it seems that further tax increases for luxury London properties could be in the pipeline.
While George Osborne, the Chancellor of the Exchequer, has not commented specifically upon the need to raise £1 billion in additional taxes it is known that he is looking towards the London property market yet again. As the market continues to move higher, defying the belief of many property experts, this could be a win-win situation for the Chancellor and the coalition government.
While stamp duty on properties worth in excess of £2 million now stand at 7%, there is speculation that George Osborne is looking to increase this or perhaps reduce the level at which the higher rate comes in. This could raise an enormous amount of money when you consider the size of the London property market and the fact that it has been so buoyant in recent times.
Quote from PropertyForum.com : “Despite the pessimists suggesting that the UK housing market is approaching “price bubble” time it seems that confidence in the UK market has never been higher.”
When you also bear in mind that a significant share of London property investment over the last 12 months has come from foreign investors, the government could defend itself against penalising UK investors by noting the high percentage of overseas investors. There is also speculation that George Osborne is considering a form of capital gains tax for foreign investors in the UK property market as they are currently exempt from this controversial tax.
Will this help the government?
In many ways this could be a win-win situation for David Cameron and his coalition partners. It would reduce the amount of criticism the Conservative party has received due to it “protection” of the rich and would indeed raise a significant amount of money for the Treasury. The fact that the UK coalition recently promised tax breaks for married couples and free school meals for all infant school pupils means that an additional £1 billion is required.
Research also seems to back up the government’s belief that the London property market in particular could withstand a further increase in stamp duty or indeed the introduction of capital gains tax for foreign investors. This is all good and well with the market flying high and investors willing to chase prices higher but what happens when the good times come to an end?
If the UK government was to introduce further taxes specifically targeting the luxury end of the property market, to all intents and purposes the London property market, this would likely have little impact upon short-term investor sentiment. However, long-term investors in the UK property market would need to recalculate their risk reward ratios because this increase in base cost would need to be accounted for.
Unfortunately, while recently the banks were milked for one off taxes it seems that it is now the turn of property investors to come under this particular spotlight. It is all good and well increasing taxes in the good times but who will support property investors during future downturns?