This blog explores how stamp duty will change after the 2019 general election and the effects of these changes.
- Originally the Conservative government announced a 1% stamp duty surcharge for overseas buyers of residential property.
- Read my comments on this change here
- Now, the Conservatives’ manifesto on stamp duty is proposing that stamp duty for overseas buyers will increase by 3% for purchasers who are not resident in the UK for tax purposes buying residential property in England from overseas.
- The proposed 3% additional stamp duty surcharge would be charged on residential property on top of all other stamp duty already payable, including the 3% surcharge on second homes and buy-to-let properties that took effect in 2016 so it would be a surcharge on a surcharge.
- This will apply to non-tax resident companies and individuals alike, as well as expats wanting to move back home.
- This stamp duty surcharge will not apply to persons who are tax-resident in the UK.
- The aim is to stop non-UK tax residents investing in homes and leaving them empty, in order to reduce house prices and increase the availability of housing.
- They have estimated that this will raise up to £120 million if there are 70,000 transactions by overseas buyers of English residential property each year.
- They have announced that money raised by the stamp duty surcharge on overseas buyers of residential property will help tackle the housing crisis; namely, rough sleeping and homelessness.
- Relevant stat: Between 2014 and 2016, 13% of homes in London were bought by overseas buyers.
- The stamp duty surcharge suggests that a wealthy foreign buyer of a £1.5m home in London would pay £183,750 in stamp duty compared with £93,750 for a Londoner buying the property for their own use.
- Labour are also proposing a levy on overseas companies buying housing.
- Also, in 2017, Labour said it wanted to put stamp duty on equity and credit derivative trades as well as corporate bonds. This time around, the party plans to go further by extending it to forex spot and derivatives trades, interest rate derivatives, and commodities spot and derivatives trades at 50 percent of transactions costs. A discount of one-third will apply to financial firms, because financial firms have lower transactions cost. This will raise £2.1bn a year, Labour estimates, although the total generated by its long-standing financial transactions tax is £8.8bn.”
- Labour have an offshore company property levy policy.
- The Conservatives’ stamp duty proposal coincided with Labour’s proposal to overcome the housing crisis by building 150,000 new council houses.
- In order to overcome the rising price of houses, they’re instead proposing to build more low-cost homes reserved for first time buyers in every area.
What does the Conservatives’ proposal mean?
The most striking thing about the proposal is that it would introduce the concept of residence into SDLT which hitherto has been levied on the basis of where the property in question is located. It will only apply to residential property in England and Northern Ireland although if introduced it is likely that the Scots and Welsh governments would introduce a similar stamp duty surcharge in LBTT and LTT respectively.
Would it actually work?
Non-resident investors have traditionally been very active in the off-plan purchase market. They usually aim to flip their purchase contract at a profit to another buyer after holding the right to purchase for 2 or 3 years while the development is being built.
This market provides developers with valuable pre-completion funding and helps to secure project finance. At the moment, these flippers do not pay any SDLT because they never substantially perform or complete their contracts and it is left to the ultimate purchaser to pay the tax.
Unless the SDLT rules on when SDLT becomes payable are changed for the new stamp duty surcharge, any new charge on non-UK residents is not going to affect flippers and may well encourage flipping.
Another practical problem with any new stamp duty surcharge on foreign buyers of residential property will be that some non-UK resident investors will be tempted to use UK resident proxy buyers who hold as nominee for the non-resident in order to get around the charge.
While this would amount to tax fraud, it would be difficult to detect and would make the effective operation of the levy difficult to enforce properly and unfair in that it only hit honest foreign investors and not those who hide their ownership.
If you would like to know more about how the new stamp duty surcharge might apply to you please use the contact form below to get in touch with me.