The chairman of a leading property and construction group believes that the upcoming changes in stamp duty tax could have a major impact on the property market.
Mark Webb, chairman of the property and construction group at Smith and Williamson, believes the proposed increase of SDLT rate by 3% from April 1st will, ‘drastically affect the profit margins of many in the property industry.’[1]
Changes
Upcoming alterations in legislation will see an increase of 3% from April on tax paid on buy-to-let, second homes and other residential properties that are purchased by individuals. In addition, residential properties bought by trustees, except from where there is a life interest and residential properties purchased by corporates or collective investment vehicles.
One exemption, where there has been a block purchase of a minimum of 15 residential properties, is being considered further.
A consultation document reads that the increased rates of SDLT rates will apply to the majority of transactions above £40,000 in England, Wales and Northern Ireland.
Upcoming SDLT rise will have ‘drastic’ affect
Key issue
Webb believes that, ‘the key issue affecting corporates is any available exemptions. The government is considering an exemption from the higher rates, with the possible intention of targeting this at cases where there is a bulk purchase of at least 15 residential properties in one transaction. It is seeking evidence as to whether making such an exemption available to individual investors as well as non-natural persons would support the government’s housing agenda.’[1]
‘The intention otherwise is that the first purchase of a residential property by a company or collective investment vehicle is subject to the higher rates of SDLT. Thereafter, as purchases of further properties would also be subject to the additional 3% charge, apart from where bulk purchases can be made, this would add a significant uplift in costs for corporates,’ he continued.[1]
Lack of encouragement
Mr Webb went on to say, ‘while appreciating that the new proposal may encourage investment in new sites, increasing the stock of housing, it will do little to encourage corporates and funds to invest in and improve other housing, such as small holdings being sold off by individual landlords trying to leave the industry. Where such properties are bought up by institutional investors, such as REITS, which the Government seems to want to encourage, the additional SDLT charges are likely to lead to higher rents rather than additional supply.’[1]
‘It should be recognised though that all options appears to remain open. The consultation has asked for all comments around an exemption and we expect funds, individuals and companies owning significant amounts of property or contemplating significant investment to argue that an exemption should apply,’ Webb concluded.[1]
[1] http://www.propertyreporter.co.uk/property/stamp-duty-rise-could-drastically-affect-property-industry.html