Demand for London’s multibillion-pound residential market has fallen by 33 per cent since the introduction of hard-hitting stamp duty measures in April’s Budget, according to Hamptons.
At a property roundtable event this week, the estate agent revealed that registrations from wealthy buyers had been lower in each month since April than at any time in any of the previous five years, and are 43 per cent below normal levels.
The Budget introduced a new charge to Stamp Duty Land Tax (SDLT) at 15 per cent on purchases by company vehicles of residential property costing more than £2m, alongside a new top rate of 7 per cent for such properties purchased by individuals.
These charges were introduced with immediate effect. Additional measures to take effect in 2013 impose an annual charge on corporate vehicles and impose capital gains tax on disposals of properties held indirectly.
The roundtable, which included tax experts, real estate lawyers, buying agents and representatives from industry bodies, included responses from a survey of how wealthy property clients felt about the stamp duty measures.
The vast majority of respondents said the new measures had either strongly or partly deterred them from buying property in London. Also, whereas 78 per cent of people said that – before the Budget – they would have bought property using a “corporate envelope”, or “company structure”, just 10 per cent said they would still buy through such a vehicle.
Andrew Phillips, central London director at Hamptons International, says: “While SDLT measures had a very real short-term impact on the spring market – arresting the previously buoyant prime central London market in its tracks – the long-term impact is even more worrying. These measures are being seen as a witch-hunt on the rich and are seriously deterring wealthy buyers.”
He warned that by targeting certain residential buyers, many of whom he says prefer to hold UK property through a corporate structure to retain anonymity rather than avoid tax, “the government is cutting off its nose to spite its face”.
He contends that activity in the £2m-plus property market has fallen by more than 40 per cent in 2012, representing around 700 fewer transactions. Assuming a 7 per cent SDLT rate, that implies foregone revenue of between £150m and £175m.
Experts also say the lack of clarity over the CGT position on these properties and the new annual charge, means many buyers are waiting in the wings, and estate agents and accountants urge the government to clarify its position as soon as possible.
Participants in the roundtable, which included Mishcon de Reya, PwC, the British Property Federation, a high-end buying agent, and Hamptons, variously described the package of measures “conflicting”, “confused” and “muddled”.
Paul Emery, director at PwC, says: “The government felt under considerable political pressure to do something, but the 15 per cent levy has been applied too widely, capturing many legitimate businesses.
“We believe the measures, aimed at persuading people to transfer property out of corporate structures will not achieve what the government set out to do, and will in fact do the opposite . . . The significant reduction in transactional activity that Hamptons has identified seems to support our predictions.”
Developers, professional investors, property funds and private trusts all find themselves caught by the rules, mostly inadvertently. “One specific example of where the ramifications of these proposals may have not been thought through as far as they could have been relate to Real Estate Investment Trusts (Reit),” adds Emery, who points out that the government has been trying to encourage investment in Reits. “Subjecting a Reit to SDLT at a rate of 15 per cent on acquiring residential property and an ongoing charge seems counter to that commitment.”
However, Peter Cosmetatos, director of policy at the British Property Federation and a member of a working party on the annual charge, says there is some hope for those caught by the charges unfairly.
“The government is consulting on the annual charge and the capital gain tax proposal, and they seem to be listening to what we are saying. We hope that the CGT proposals are formally abandoned and business-related properties are completely exempted from these measures.”
The consultation period has now closed and some experts predict the government will make an announcement in the autumn before the final proposals come into effect in April 2013.
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