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Property Investors Benefit from UK Stamp Duty Cut

The abolishment of the stamp duty for property up to £300,000 in the recently announced UK Budget will largely benefit first-time house buyers as well as investors/ current owners.

The UK Budget, announced just a few days ago, was billed the ‘Housing Budget’, with housing placed at the heart of the British government’s spending plans.

Chancellor Philip Hammond announced that more money will be poured into housing over the next five years to ensure that land is available, that homes, including affordable homes, and supporting infrastructure will be built where needed.

But the real headline-grabber was the abolishment of the Stamp Duty and Land Tax for first-time buyers, which is effective immediately.

Stamp duty and land tax is a lump sum payment imposed on purchases of property or land over £125,000. The tax rate varies depending on the value of the property.

The new Budget stipulates that stamp duty will not be imposed on purchases of property priced up to £300,000 outside London.  Meanwhile, in high priced areas like London, exemptions will be availablle on the first £300,000 of the purchase price of properties up to £500,000.

The Chancellor said that this is effectively a stamp duty cut for 95% of first time buyers and that going forward 80% of first time buyers will not pay the tax.

The changes in stamp duty announced in the UK Budget on 22 November, is effective immediately and will not just benefit first-time buyers, but also current owners/investors. . Image credit:
The changes in stamp duty announced in the UK Budget on 22 November, is effective immediately and will not just benefit first-time buyers, but also current property owners/investors. Image credit:

The Chancellor introduced the policy after it was revealed that the number of people under 45 who own their own home has fallen by 20% since the Tories took power seven years ago.

While the new policy will largely benefit first-time house buyers, investors will benefit, too, as demand will push up property prices, which, together with the inherent lack of supply, will continue to drive people to rent. This will keep the rental market strong.

“The abolishment of stamp duty for property under £300,000 will fuel a spike in the prices of homes within this range due to increased demand and a rush to buy currently available property within this price range,” says CSI Prop spokesperson Virata Thaivasigamony.

“It’s a double-edged sword and boils down to housing availability. The reality is that there is a housing undersupply in the UK with little likelihood that supply will increase in such a short period,” he adds, alluding to the Chancellor’s pledge to increase construction of new homes to 300,000 a year on average by the mid-2020s (up from 217,000 last year).

The secretary of state responsible for housing, Sajid Javid, has said that up to 300,000 additional homes must be built in England annually, up from about 150,000 in 2015 and a little more than 220,000 over the past year. Some industry players say this looks increasingly unlikely given the significant national deficit and ongoing debates over green belt construction.

The Office for Budget Responsibility said that the tax break could push property prices up by approximately 0.3%, with most of the increase coming in 2018. It also said that it is the current property owners who would be the main gainers of the new policy.

HMRC has also confirmed in a statement that while the new stamp duty policy reduces the upfront cost of buying a home for first time buyers, it is also expected to lead to an increase in house prices in the first year after implementation.

Meanwhile, with the increase in prices and undersupply in housing comes a continued demand for the private rented sector. The Property Wire quotes Andrew Turner, chief executive of brokerage Commercial Trust Limited, as saying that there could be a higher demand for private sector homes in Birmingham, Manchester and Liverpool where landlords are already enjoying higher yields than in London.

The Royal Institute of Chartered Surveyors (RICS) has predicted that 1.8 million more households would be looking to rent by 2025 as a result of increasingly unaffordable homes.

Dorian Gonsalves, chief executive officer of franchise lettings agency Belvoir, pointed out that demand for rental properties is set to remain high. 

He pointed out that many young people are actively choosing to rent rather than to become first time buyers and that is not necessarily going to change.

‘The reasons for renting are numerous, and many young people simply do not want the commitment of a 25 year loan,’ said Gonsalves.

What was rather unexpected in the Autumn Budget was the announcement that capital gains tax (CGT) will be imposed on all real estate types, to be effective likely by April 2019. Currently, CGT is only imposed on residential property.

This, however, is unlikely to affect investor appetite much, as many other jurisdictions already impose CGT on foreign property investors. Additionally, the robustness, transparency and resilience of the UK property market — on top of the weakened pound — continue to remain top criteria for foreign investors.

The Autumn Budget has also given local councils the authority to double taxes on empty properties. Under the new rules, local councils can charge up to an extra 100% of council tax if a home has been empty for two years or more, up from the current 50%.

Looking for projects below the £300,000 and  £500,000 (London) range? Contact us at 03-2162 2260.

Article by Vivienne Pal

CSI Prop proudly promotes international investment property with high yields at low risk. Our portfolio comprises residential property in cities across the United Kingdom (London, Luton, Manchester, Liverpool, Newcastle, York, Glasgow, Scotland; Sheffield, etc); Australia (Melbourne, Perth, Brisbane) and Thailand (Bangkok). Our projects are concentrated in high-growth areas with great educational, infrastructural and job growth potentials. We aspire to make a difference in the lives of our clients by helping them achieve their investment goals through strong market research backed by third party experts. 

Disclaimer: CSI Prop does not provide tax & legal advice and accepts no liability. Readers are encouraged to consult a qualified tax or legal advisor for a thorough review.

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