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Stamp Duty: Reviewing the Bigger Picture

Stamp Duty Changes

Following on from our last news post – which explored the consultation questions for the upcoming changes to Stamp Duty Land Tax (SDLT) due to be announced in next month’s Budget, this time our team take the opportunity to share their thoughts on how the changes look within the bigger picture of the property market, for the year ahead.

Better or Worse: 2013 vs. 2016

Stamp Duty Land Tax has had several make-overs in recent years, with new cumulative tiers arriving in December 2014.  This radical change brought in savings to all homes under £925,000, - and was widely a positive move for the majority of home owners of English properties.  However the introduction of two new higher tiers at £925,000 and £1,500,000 was a change that had wider implications for London, where house prices are higher and where a greater proportion fall above these two price points.  This plus the threat of the Mansion Tax that was a risk if Labour had won the 2015 election in May last year, contributed in part to a slow-down in transactions last year, as the added purchase costs, plus global market-place volatility caused buyers to be more cautious.  

When considering the impact of the proposed three per cent surplus on SDLT from April 2016 on Second Homes and Buy-to-Lets it's worth bearing in mind these other changes.  For example, the reduction in the tax for properties sold for under £925,000 means that even with the new 3% tier, may not be wildly different from the higher rate people were paying before December 2014.   I.e. if an average UK home is now selling closer to £300,000, then pre December 2014 they would have paid £9,000 in SDLT, and only £5,000 after.  Depending at what part of the threshold tiers the new three per cent surplus is added (ie the highest tier only, or on all bands) then the new tax could fall anywhere from £6,500 to £12,750.  It will be interesting to see what the Chancellor goes for.

London Dynamics

For the London market, temporarily at least, the autumn announcement has triggered unexpected demand in Prime London, as investors try to complete before the new costs come into effect. Nicholas Shaw, Sales Manager at Harrods Estates Kensington, explains:  ‘Quite the opposite has occurred and there has been a marked increase in activity at the latter part of January and through February this year. Many purchasers who were previously hesitant to make offers or commit to purchasing property have entered the marketplace with a sense of urgency to complete on their transactions before the 31st March deadline, due to the extra expense occurred, if they are purchasing second homes after this date.’

This is affirmed by Simon Barry, Head of New Developments at Harrods Estates, who adds: ‘The introduction of the 3% additional SDLT has encouraged many buyers to come off the fence over the past four months and has led to a surge in activity.’

Political Intricacies

Mark Greenway, Sales Manager of Harrods Estates Chelsea, rightly highlights the on-going challenges of micro and macro factors that might still prove a challenge for investors in the immediate future, plus how behaviours are not playing out consistently across Prime and outer Prime London, with pockets of differences emerging that buck the trends elsewhere.

He shares: ‘The imminent introduction of the increase in stamp duty land tax for second homes looks to have had little positive or negative impact on the Chelsea market which remains rather stagnant.  Many vendors appear to be continuing to be sitting tight while uncertainty surrounds the UK’s membership of the EU and any strengthening or weakening of the pound as a result.   Buyer confidence remains low with Middle Eastern buyers the most active players in the market and a small number of domestic buyers buoyed by markets outside prime central London where attractive borrowing rates support increased activity and record sale prices.’ 

With the Referendum now confirmed for June 2016,  - a little sooner than anticipated, this will add another degree of complexity to buyer’s decisions.  Either way, the results will continue to have an influence.  Learning the lessons of the Scottish referendum it seems likely that the majority of buyers might sit and await the outcome before committing themselves to new investments, however for those prepared to accept the risk, there is a savvy window of opportunity to use the window of uncertainty in their negotiations and strive for a competitive purchase price.  Remaining positive though, Head of New Developments, Simon Barry reflects on how London still remains an attractive longer –term option despite this extended period of political decision making: ‘Going forward, the purchase costs of buying property for investment have increased, but this does nothing to detract from the long term benefits of owning residential property in Central London. Anyone who buys to hold for the medium to long term should be more than compensated for their initial investment by excellent capital and income growth. The demand for Prime Central London shows no sign of waning, in fact quite the contrary.’

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