Mixed reactions from property world over 7% Stamp Duty hike

The hike in Stamp Duty to 7% for properties over £2m has provoked mixed reactions.

Some heaved a sigh of relief, saying it was better than a Mansion Tax, others said it could affect the entire property market, and some said its impact would be negligible.

Many said accountants would already be busy cooking up new tax avoidance schemes, while developer Nick Candy accused the Chancellor of replacing bank-bashing with property-bashing.

Richard Sexton, of valuers e.surv, said the hike was ‘farcical’, given that yesterday’s Budget also cut the top rate of income tax.

He also said the Stamp Duty hike would raise far less than Chancellor George Osborne clearly hopes for.

Sexton said: “Wealthier Londoners and sections of the City are incandescent over the 7% Stamp Duty, for the same reason turkeys, if enfranchised, wouldn’t vote for Christmas.  Four in five of all £2m properties in the UK are in London and the South-East, so these regions will be hit disproportionately hard.  

“Our research, drawn from analysis of loan approvals on £2m properties, suggests £1.5bn is an overly optimistic estimate of the revenue the scheme will raise. The real amount may not even be half that.

“Based on sales over the last two years, a 7% rate would only raise around £700m, and even a 20% increase in 2m transactions over the next year would still see the amount raised struggle to hit the £1bn mark.
 
“It won’t be a policy that hits the housing market with any real force. It is a way to raise revenue from property without rocking the foundations of the market.

“An extra £40,000 of Stamp Duty tax is an annoying inconvenience for wealthier buyers, rather than a serious repellent. The effect on the overall housing market will be nominal, given how few people the tax affects.  

“Less than 1% of all house purchase approvals in 2011 were for properties worth over £2m, so the effects are unlikely to be widely felt and won’t feed down into the lower echelons of the housing market. And the suggestion it will make the wealthy think twice about moving to London seems farcical given they will be paying 5% less in income tax.”

Lucian Cook, director of residential research at Savills, was similar to Sexton’s. He estimates that the hike could raise up to an additional £436m – if, and he underlined it is a big if, tax evasion is stamped out. Yesterday’s Budget also introduced 15% Stamp Duty for properties bought within a corporate envelope.

But Cook predicted that new tax evasion dodges would be quickly worked out.

He said: “That would mean that £2m-plus properties would account for some 23% of Stamp Duty receipts from residential property, despite only accounting for fewer than one in 200 housing transactions in the UK.”

“These measures will mean that high value property is making a hugely disproportionate contribution to the tax take. And, for all the talk of stamping out Stamp Duty evasion, this move will provide an even stronger incentive to property lawyers to dream up new, perfectly legal evasion schemes.”

Estate agent Trevor Kent said that the 7% hike would affect home sales in all price ranges, because of the way buying and selling chains are built up. He warned it would not just affect the wealthy.

He said a first-time buyer could pay £1,350 Stamp Duty on a home worth £135,000. The next buyer in the chain would pay £24,000 on a £600,000 purchase. The next on up the chain, buying at £1.2m, would pay £60,000 Stamp Duty. The one at the top of the chain,buying at £2m, would pay £140,000 Stamp Duty.

Kent said: “It will probably mean no sale, the whole pack of cards collapses, and even the £135,000 buyer loses out.”

He said that the Government was seeking to earn £234,350 from a chain of just five sales. He said: “Punitive charges do only one thing. They kill the golden goose and starve the populace.

Paul Beresford, managing director of estate agent Beresfords in Essex, which has a successful premium homes division, said: “A hike to 7% duty for properties over £2m could be a jump too far and create an artificial price correction to those properties on the cusp.

“We believe a fairer way to manage this property tax would have been to introduce incremental tiers between the current bands to encourage greater activity at all levels of the property market.”

Another agent, Dawn Carritt of Jacksons-Stops & Staff, said the hike’s greatest effect would be damage to Britain’s farming industry.

She said: “Even a smallholding with a modest farmhouse could fall into the new Stamp Duty rate and the £140,000 which would have to be paid on the purchase of a small working farm represents a significant slice of what could otherwise be working capital. 

“For those with larger holdings, the new rate of tax is as inevitable as it is unwelcome.  Hopefully, due consideration will be given to the impact such a rise could have on British farmers.”

According to Rightmove, there are fewer than 5,000 £2m-plus properties currently listed on its website.

Director Miles Shipside said: “We expect to see distortion and downward pressure on prices just above the £2m bracket as a result of the new 7% stamp duty rate on properties over £2m.

“However, there are less than 5,000 properties currently for sale over £2m on Rightmove, so the measure will bring in limited extra treasury funds overall.

“The Stamp Duty of 15% on properties over £2m bought within a corporate envelope will level out the playing field for Londoners who want to buy in London but are competing with overseas buyers. Both measures combined may take some froth out of the higher end of the market, such as in Kensington & Chelsea where the average asking price for a property is now over £2m.

“We hope this will not deter prospective buyers and harm transaction levels, though it may well reduce sellers’ negotiating power and strengthen buyers’ ability to offer a bit less to compensate for the additional tax implications.”