Implications of the stamp duty additional surcharge
Successive UK governments have introduced legislative measures in an effort to dampen the bubbling property market, seen particularly in London and the South East, and increase access for first-time buyers. In recent years such measures have targeted the buy-to-let sector; for example, the phasing out of mortgage interest relief, tighter lending restrictions and restructure of the Stamp Duty Land Tax (SDLT). There were 9 SDLT rate changes between 1998 and 2014. A 3% surcharge on top of the current banded rates on second / additional homes was introduced in April 2016. SDLT was scrapped for first-time buyers (up to the value of £300,000) in November last year.
Now, the 2018 Autumn Budget outlines a plan for an additional surcharge of 1% or 3% on purchases by non-residents. Funds raised by this latest rate hike will purportedly be used to address social issues such as homelessness, though the PM did not directly correlate foreign / non-resident ownership of property with homelessness. While the measure is subject to consultation (expected to take place in January), in general taxes go one way: up.
A non-resident, first-time buyer client of ours bought a property in January 2017 for £365,000 and paid £8,250 SDLT. Under the latest proposed rates structure, that same purchase would be subject to the following SDLT:
|Purchase Category||Taxable Sum||SDLT Rate||SDLT Value||SDLT Total|
|£300,000||1% – 3%||£3,000 – £9,000||
£6,900 – £14,200
|£65,000||6% – 8%||£3,900 – £5,200|
2nd / additional home
2nd / additional home
|£125,000||4% – 6%||£5,000 – £7,500||
£22,850 – £30,150
|£125,000||6% – 8%||£7,500 – £10,000|
|£115,000||9% – 11%||£10,350 – £12,650|
* first property worldwide
While buyers have fled the buy-to-let sector in significant numbers since April 2016, driving prices down, especially in the London market, unintended consequences and current economic circumstances make UK property an attractive investment in spite of any coming additional surcharge.
Lending restrictions have led to lenders cutting buy-to-let mortgage rates due to a drop in demand from landlords.
With more than half of all UK residential property investments originating from overseas, driving non-resident buyers away could aggravate the supply shortage, putting upward pressure on rents in the future, thereby increasing rental yields for landlords.
The pound fell to an 18-month low this week over Brexit deal uncertainty. This amounts to a de facto discount for buyers using foreign currencies. We also believe that any price drops due to Brexit scaremongering will be short-term and a housing market crash is unlikely. Even in the worst-case-scenario, the BoE projects growth to resume at the end of 2023.
We believe now is a smart time to invest, especially in the interim before any new rates come into effect. Contact us in order to discuss options for including UK property in your portfolio, including establishment of a limited company, commercial property and buying in regions other than London and the South East.