At last, the waiting is over for upmarket agents in London as they see exactly what the triple whammy is for wealthy foreign purchasers who buy properties through vehicles such as companies and partnerships.
Yesterday, the Finance Bill confirmed that the 15% Stamp Duty Land Tax (SDLT) for £2m-plus properties bought by ‘non-natural persons’ will stay.
In addition, there are now details on the new annual levy, to be called the Annual Residential Property Tax (ARPT), payable by corporate vehicles.
Both moves were announced in the March Budget when the Chancellor said he intended to close an alleged £1bn Stamp Duty loophole whereby super-rich foreigners avoided the levy by putting expensive homes into the ownership of offshore companies.
In the same Budget, George Osborne also hiked Stamp Duty on £2m-plus properties for ‘ordinary’ buyers to 7%.
The new ARPT will start at £15,000 for properties worth between £2m and £5m, go to £35,000 for properties between £5m and £10m, and £70,000 for properties between £10m and £20m. For properties over £20m, the annual tax will be £140,000.
However, the eye-watering new tax regime has an all-important exemption which will kick in once the Bill passes on to the statute books.
Residential properties used for ‘genuinely commercial activities’ – ie, rental – will only be liable for the lower 7% SDLT announced in this year’s Budget for ‘ordinary’ purchasers. Such properties will also be exempt from the new ARPT.
The third part of Osborne’s triple whammy is Capital Gains Tax, also intended to catch – for the first time – wealthy foreign purchasers buying through companies.
Here, the waiting goes on: draft legislation for the extensions to the CGT regime will be published early next year.
However, it is clear that CGT will NOT be charged retrospectively – to the relief of wealthy property owners and agents. It will be charged on gains made from next April 6, and not since purchase. The rate will be 28%.
London agents, who have seen sales of £2m-plus properties to rich ‘non-natural’ international purchasers sink by up to 80% since the Budget whilst awaiting clarification, said that wealthy owners might now unravel their company structures or choose to let out their properties.
Peter Mackie, managing partner at independent buying agents Property Vision, said the new tax regime might help put an end to ‘black-out London’.
He said: “One of the concerns as a result of increasing international investment has been the impact of black-out London on some areas of the capital where home owners only use their property for a few days a year, leaving it empty for the remaining time.
“The announcement in the Finance Bill that rental businesses will be exempt from the annual property charge should encourage some home owners to rent out their property.
“This could result in these areas benefiting from a greater number of residents using local businesses and services, but we don’t believe that will have an effect on rental prices in prime central London.”
He added: “The legislation announced in the Finance Bill will reassure a number of prime buyers who have been hesitant to commit to a sale. Although it will be an added cost for buyers purchasing through a corporate structure, it is unlikely to discourage buyers at the top-end who still view London as a ‘safe haven’.”
Robert Bartlett, CEO of Chesterton Humberts, said that the new tax regime was really an ‘anonymity tax’, cracking down on individuals hiding behind corporate structures. He said that if those individuals want to avoid their tax liabilities, they will have to surrender their anonymity – and pay up.
Dominic Agace, CEO of Winkworth, said: “The announcement will have an effect, as overseas buyers account or approximately 60% of the market and many hold their property investments in company vehicles. We may see non-core properties being sold off by April 2013.”
Ed Mead, of Douglas & Gordon, said he thought there might still be some loopholes for rich foreign investors because of the complexities proposed by the new CGT regime.
He said: “We’ve seen purchases for those not buying in the own name down 80% since the Budget in March so it will be interesting to see if that blockage releases or whether we will continue to see detrimental decline. We will have to wait for Q3 2013 to find out via the Land Registry.”
Naomi Heaton, of London Central Portfolio, the property investment fund, said that like Ed Mead, she was worried about the CGT proposals.
She said: “This further consultation on the CGT charge does give cause for concern. It appears to be a disincentive for property owners to de-envelope their properties on sale, in direct contradiction to the declared objective of the Government, and therefore could be a stride by the Government towards imposing a CGT on all non-domiciles and non-residents.”
The British Property Federation said it welcomed the Finance Bill, saying it would will ensure foreign buyers of luxury residential property pay their fair share of tax, while safeguarding genuine business investment in residential property.
Liz Peace, chief executive of the British Property Federation, said: “Foreign buyers of luxury residential property for their own enjoyment were always the intended target of the Stamp Duty changes: it was never designed to deliberately clobber commercial investment in UK housing.
“The devil will be in the detail, but it appears ministers have listened and sensibly decided to make technical changes that ensure the scope of the measure is not wider than it needs to be.”
However, she warned: “It is unfortunate the confusion has led to an investment hiatus. Because of the legislative procedure, businesses looking to invest today will have to wait until next summer, or pay the additional 8% [in Stamp Duty].”
Peter Wetherell, director of specialist estate agency in Mayfair, Wetherell, said: “Since revisions to the corporate ownership of property were announced but not outlined in detail this year, many prospective buyers of prime central London properties have been deterred by the uncertainty surrounding costs of ownership, which cast a long shadow over the market.
“This was particularly evident in Mayfair, where a high proportion of buyers purchase properties through corporate structures.
“The details announced, while not overly encouraging to corporate owners of high-value properties, at least provides guidance on what the Government is planning.
“This may help unlock some of the buyers who have been on hold.
“The Government is quite plainly indicating that private ownership of properties over £2m with a 7% stamp duty levy is the preferred route for overseas buyers, but this also comes with knock-on implications regarding capital gains and inheritance.”
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