Foreigners who buy property in the UK are set to pay a higher rate of stamp duty, the tax payable on purchase, it has been announced.
Prime Minister Theresa May told her Party Conference that it is part of the overall strategy to tackle the housing crisis amid concerns that foreign buyers have been using property as a way of stashing money and pushing up prices, particularly in London.
There will be a consultation period but it is likely that anyone buying a property who does not pay tax in the UK will find themselves paying a higher rate of stamp duty.
Research from York University estimated that 13% of new London homes were bought by non-residents between 2014 and 2016 and a study by King’s College London estimated that a 1% rise in homes being sold to overseas companies put up house prices by 2.1%.
But the plan has not been universally welcomed by the industry. It is a knee jerk reaction, according to Caroline Takla, director of prime London buying agency The Collection.
‘The idea that this levy will help tackle homelessness is a noble one, but I think this is a cynical distraction. One could argue that homelessness has not been caused as a direct consequence of non-resident ownership in London, but rather from imposition of many years of austerity,’ she said.
She pointed out that it will lead to a reduction in stamp duty tax going into the Treasury if it deters foreign buyers in significant numbers. ‘The UK is fast getting a reputation as a country which is not business friendly, does not encourage foreign investment and where taxation with respect to residential property can be targeted for change every six to 12 months. There is a limit to how much the property market can absorb,’ she pointed out.
‘The new build sector will be most affected as developers will have to take a hit on prices. Unfortunately, this is a sector that supports many jobs in construction, architecture, interior design and sales and will likely have a knock-on effect on unemployment which can only fuel some of the challenges that this new tax is trying to address,’ she added.
Camilla Dell, managing partner at Black Brick, also believes that it will not help the housing crisis and she pointed out that foreign buyers already pay a 3% surcharge when buying in the UK as most own property abroad in their own countries, meaning they are automatically paying 3% more than a UK resident buying their first home.
‘This has already had a detrimental effect on London, lowering transaction volumes, creating an illiquid and dysfunctional property market. Foreigners are also treated the same as UK residents when it comes to paying inheritance tax and capital gains tax. The new proposed tax will simply pour more glue into what is already a very fragile London market, still trying to adjust to higher stamp duty rates,’ she said.
‘The housing crisis needs to be solved by building more affordable homes. Feed the market from the bottom. Giving incentives to developers to deliver these homes. Putting foreigners off buying will not lower prices at the sub £500,000 part of the market. It will not make property more affordable for first time buyers,’ she explained.
‘What it will do is dissuade wealthy buyers from buying homes well above £1 million. And in turn reduce the tax take. Not just from stamp duty but other ways in which foreigners contribute through employing people and spending money in our shops. The latest move by the Conservatives seems desperate. Misguided. And based on very little research,’ she added.
She hopes that the consultation period will be constructive but it does mean that anyone looking to invest in property in the UK should think about doing so sooner rather than later.
‘The best we can hope for is a constructive consultation period and re-thinking of this idea. The worst, a delay on the inevitable and a short term boost to transactions as foreigners bring forward their purchases,’ Black concluded.