New stamp duty rates take effect in the UK from today with properties over £2 million subject to rates of 7% and 15%, depending on who is buying them.
All properties worth £2 million or over will now be subject to the 7% tax rate but those being bought via a company, a tactic used by wealthy overseas buyers to avoid tax, will be subject to a higher rate of 15% in order to deter the practice. The change means a minimum tax contribution of £140,000 by someone buying a residential house costing £2 million or more.
Meanwhile, there has been disappointment in the property industry that the current stamp duty holiday for first time buyers buying property worth up to £250,000 which ends this weekend is not being continued.
According to Liam Bailey, head of residential research at Knight Frank, there will now be some tough negotiations around the £2 million level.
‘It is important to bear in mind that the prime London market has just absorbed a 42% price rise since 2009. And this came despite an uplift in stamp duty last year. It seems unlikely that the new 7% rate will result in dramatic price changes,’ he said.
‘It is when we look at evidence from previous stamp duty hikes, that we can see more issues arising from the proposed change. Higher stamp duty rates tend to mean owners stay in their properties for longer. There is a greater incentive to improve and extend properties rather than moving up the ladder. The impact of this is to reduce supply and reduce transaction volumes over time,’ he added.
He pointed out that the prime country house market could benefit.
‘Wealthy London buyers looking to move on to a family house might decide to skip London, deciding that a few thousand pounds in commuting costs is worth it to buy a house at £1.9 million in the country rather than a similarly sized London property for £2.2 million, saving themselves £59,000 in stamp duty in the process,’ said Bailey.
But there are concerns about the effects on more ordinary families living in London where property is prices so much higher. Sue Foxley, head of research at Cluttons, said that it will not just be the wealthy that will be affected.
‘Demand for family homes is expected to rise significantly over the next five years, pushing a greater number of properties into the taxable bracket. Three and four bedroom family homes in popular London locations such as Islington and Paddington are expected to reach £2.6 million and 2.1 million in value respectively by the end of 2017, pushing them comfortably into the new tax band,’ she explained.
She added that family homes in Highbury, larger flats in Paddington and two and three bedroom flats in Pimlico are projected to be within 15% of the £2 million threshold, threatening even more households with further taxation.
Nicholas Leeming, business development director at Zoopla reckons that the government believes the stamp duty holiday has not been significant in encouraging first time buyers into the property market and that is why the temporary suspension is not being continued.
‘Given the importance of first time buyers in providing the first link in the property chain, the government should be doing everything possible not to deter these buyers and allow them to energise the rest of the market,’ he said.
‘Whilst the housing market has picked up significantly over the last year, the government cannot be complacent about the continuing need to help young buyers, a move which will drive growth in the rest of the sector,’ said Bob Cherry, a residential partner at CKD Galbraith in Scotland.