3% additional rate stamp duty – LCP’s budget wish list

As drafted, the proposals would have a deeply negative impact on both aspiring homeowners and investment into the UK housing stock.

It would also decrease the availability of rental property, when at least 128,000 more units are needed, even if the Government achieve its unrealistic objective of putting 1m more households onto the homeowning ladder.

In the pursuit of ‘easy hit’ tax revenues and a huge commitment to increasing home ownership, it is crucial that the Government does not find itself increasing the deficit. LCP estimate that the current proposals could result in tax and economic losses of as much as £33 billion in London alone over the next 5 years if policy amends are not made.

Naomi Heaton, CEO of LCP, highlights the company’s hopes for the consultation outcome, which will protect domestic buyers and the Private Rented Sector whilst still generating revenue to support UK economic growth.

1. Protect domestic buyers buying their first main residence by ring-fencing purchases made before the April 2016 implementation date

The proposals went much further than originally outlined in the Autumn Statement and the repercussions of multiple exclusions from the basic rate Stamp Duty (BRSD) were not considered. Many individuals without main residences would be adversely impacted and impeded from becoming homeowners.

  • This includes individuals with shares in BTL properties, family homes, trusts and other partnerships where in reality, at the ‘end of the day’, they are not occupying them as their main residence.
  • The proposals were particularly disturbing with regard to how marriage, civil partnership or parents acquiring on behalf of children affect the right of a person to be exempt from ARSD when becoming homeowners for the first time.
  • It would cause unnecessary hardship, for example when an original main residence is sold after the purchase of a new main residence due to a housing chain breaking down. This would result in buyers having to initially find a further 3% tax on purchase.

The policy should be amended so that every purchaser benefits from BRSD for their main residence. This should be an overarching principle that would more properly reflect the Chancellor’s aspirations to increase homeownership.

2. Encourage homeownership, but not at the expense of the Private Rented Sector which needs to expand to accommodate the increasing population

Whilst the Government’s target to build one million new units for homeownership is commendable, the Department of Communities and Local Government (DCLG) projects that 1.128 million dwellings will be required by 2021. It is therefore vital that the existing PRS stock is both actively maintained, particularly where it does not compete with the domestic buying market, and expanded to make up the shortfall of 128,000+ units.

  • The PRS community in London is crucial to the UK’s importance as a commercial, educational, financial and touristic hub which benefits both the domestic population and our economy
  • Rental increases due to fewer PRS properties being available and ARSD will not only diminish the UK’s attractiveness but harm hard-up tenants.

Whilst the private landlord is to be disincentivised to give first time buyers and aspirational homeowners a chance to get on the ladder, the essential increase in the PRS should be achieved by:

  • Incentivising bona fide institutional/ professional landlords, whether they be existing or start-up companies, funds, collective investment schemes or individuals, to invest in the sector through ensuring they are exempted from the new 3% ARSD.

Ensuring the exemption recognises that the PRS does not operate exclusively within the new build sector as is mooted by the ‘bulk purchase’ rule. It is vital to recognise the important role the ‘second hand’ sector has to play, if very necessary community integration between homeowners and renters is to be achieved.

3. Everyone should have the opportunity to buy one property in the UK at BRSD, if they do not already hold a property in the UK, wherever they are located.

The implementation of the ARSD policy on first property purchases by International buyers will impact on global inward investment. Not only would this have an adverse effect on the PRS but the UK economy.

The Government cannot afford to overlook this. In Prime Central London (PCL), the PRS represents 50% of all acquisitions. Last year, according to LCP research, it contributed £277.5 million to Stamp Duty, £251 million to VAT and almost £1.5 billion to the general economy.

It is vital to ensure that the ‘parallel housing market’ maintained by the foreign investor, which does not remove stock from the aspirational homeowner but services the international PRS, is not impacted. The whispered concerns around the development South of the River are already becoming deafeningly loud.

  • The average price per square foot of a new development in inner London (the nine most central boroughs outside the PCL core) has just exceeded £1,000, 5 times more than the average for a property in the UK which is £189.
  • Disincentivising international investors from making a first time purchase, will not increase housing stock for first time/ domestic buyers who simply cannot afford such properties. Instead, the policy will only reduce revenue to the Exchequer which could be deployed to build more affordable homes. Worse still, it will leave tranches of empty homes.
  • LCP estimate that over a five year period, a modest market contraction in PCL as foreign investors hold back due to the new legislation, would result in a fall of Stamp Duty, VAT and economic revenue of £7.3 billion.
  • With only 5,000 sales in PCL each year, these losses could increases 4.5 times if applied to the Battersea- Nine Elms development, where 22,000 units are in the pipeline at purchase prices far out the reach of most domestic buyers.
  • The impact of the policy on international investors’ first purchases here, could see losses equating to as much as £33 billion as well as creating an ‘urban desert’ in an area intended to be regenerated.

Whilst UK homeowners desperately needs more affordable housing, this will never be achieved by throttling the sale of more expensive homes, already under construction, nor finding endless reasons why domestic buyers fail to qualify for BRSD. LCP’s proposed policy amends would not deflect from the significance of the Government’s initiative. Anyone who does not hold a property prior to April 2016 will be subject to ARSD when they buy more than one property, foreigner or UK-buyer alike.