The Autumn Statement in December is likely to have a two-pronged effect on the Prime Central London (PCL) property market, given that the stamp duty levied on luxury homes has risen and non-domestics (non-doms), many of whom purchase PCL property, will be hit again by having to pay higher charges to own homes and reside in the UK.
The new stamp duty land tax (SDLT) rates could slow down the already sluggish PCL market, requiring buyers of luxury homes to dig deeper to cover buying costs. In real terms, the new SDLT rates mean that for every £1million above the old £2million top SDLT rate threshold, buyers will now be paying an additional £50,000 in stamp duty compared to before. For the buyer of a £20 million London property, this equates to an additional £1 million in duties than was the case before the changes.
“While we accept that stamp duty is a one-off purchase tax that the majority of high-end property buyers can comfortably afford to pay, these latest changes are likely to have a pronounced impact on market conditions in the coming months,” said one leading London property consultancy.
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“The obvious reaction is that you could see buyers making lower offers to compensate for the extra buying cost,” said Julian Walker of PropertyinUK.co.uk. “For example a buyer buying a £5-million home might lower their offer by around £160K.”
Meanwhile, could some non-doms previously attracted to London, turn their back on the capital as a matter of principle by having also to pay more to reside in the UK, as well as to buy a home?
New rules mean that wealthy individuals who live long-term in the UK but are not resident for tax purposes will have to pay £60,000 a year if they have been resident for 12 of the past 14 years. Those that have resided in the UK for 17 of the past 20 years will have to pay £90,000, and all other non-doms will continue to be hit with £30,000 a year charges. Their income tax will be levied on money earned or brought into the country, although the government is also raising the taxes levied on homes owned through companies.
On the flip side, the new SDLT rates should invigorate the sub £1million market in London and lead to a shift in the pricing structure. The voids between the old SDLT bands should disappear and pricing will become more fluid – eg the market between £2million and £2.2million should become alive again.
“Overall, that the new stamp duty rates will make it cheaper for the majority of people to buy property in the UK is a good thing – and it should make it easier for a large group of vendors who have been struggling to sell to strike a deal,” concluded Mr Walker at PropertyinUK.co.uk. “It makes 2015 more exciting too – we’re too close to Christmas to feel the full effects of the changes, but the market will have a new dynamic in the New Year.”
