For companies buying £2m+ properties, as opposed to individuals, stamp duty will be 15%. This is to clamp down on rich tax avoiders who have used their companies to buy expensive property and so not pay any stamp duty at all.
Chancellor George Osborne announced the stamp duty increases in his budget today.
Mr Osborne said: “A major source of abuse – and one that rouses the anger of many of our citizens – is the way some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property.
“I have given plenty of public warnings that this abuse should stop. Now I’m taking action. I am increasing the Stamp Duty Land Tax charge applied to residential properties over £2 million bought into a corporate envelope. The charge will be 15%. And it will take effect today.
“We will also consult on the introduction of a large annual charge on those £2 million residential properties which are already contained in corporate envelopes. And to ensure that wealthy non-residents are also caught by these changes, we will be introducing capital gains tax on residential property held in overseas envelopes.
“We are also announcing legislation today to close down the sub-sales relief rules as a route of avoidance. Let me make this absolutely clear to people. If you buy a property in Britain that is used for residential purposes, then we will expect stamp duty to be paid. That is the clear intention of Parliament.
“I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules are found. People have been warned.”
Those hoping for an extension to the stamp duty holiday for first time buyers were disappointed. Stamp duty for first time buyers on properties worth over £125,000 has been reinstated.
The property sector will doubtless be anxious that the clampdown on stamp duty avoidance does nothing to slow demand among rich overseas investors, notably from Russia, China and Southeast Asia, who have done so much to prop up demand for fabulously expensive homes in the capital in recent years.
"This can only make the UK less attractive to overseas investors," said tax specialist Toby Ryland, senior partner at accountants Blick Rothenberg.
Bart Peerless, head of the private wealth sector at law firm Charles Russell, said: "The implication seems to be that to avoid these new penal rates of tax (and the new capital gains tax charge) international purchasers should own properties personally and not through other entities such as offshore companies. For such individuals the main reason for holding through a non-UK company was usually inheritance tax mitigation - if that risk now has to be managed in other (more costly) ways it may well affect sentiment towards the London property market."
Brian Murphy, head of lending at the Mortgage Advice Bureau, said: "The new top rate of 7% stamp duty on properties worth more than £2m falls short of the ‘mansion tax’ which had been discussed before the budget. However, the impact will not be inconsiderable as the market in the southeast and particularly parts of London has been booming. The leap from 5% on properties worth more than £1m is significant and this – in combination with the pledge to crack down on tax avoidance – could raise hundreds of millions in tax revenues."
Got a story? Email news@theconstructionindex.co.uk
