At the moment, foreign individuals and companies who don’t live in the UK can buy homes as easily as people who actually live here; the Tories have claimed this drive up house prices for ordinary people, however the move could stem investment in the new build sector.
The Tories have said that they will increase stamp duty for individuals and companies who are not tax resident in the UK. They claim this tax could raise up to £120 million, which could be used to end rough sleeping.
However, Caroline Takla, Managing Partner of prime London buying agency The Collection LLP, has argued that housebuilders will bear the brunt of foreign investors’ wrath. “The new build sector will be most affected as developers will have to take a hit on prices,” she said. “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.”
Indeed, housebuilders’ shares took a hit on the news. Berkeley’s closed -0.87% down, Persimmon lost 0.60% and Taylor Wimpy shed -0.48%.
“Theresa May’s plans to impose a new high rate of SDLT for non-resident buyers is another knee jerk reform to what is fast becoming a punitive tax. 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.
“SDLT receipts are perceived as an easy way for the government to raise revenues, and with Brexit costing the UK economy £500m per week it is a simplistic solution to try and fill the monetary crater left in HM Treasury’s coffers. The Prime Minister can’t have her cake and eat it. If high SDLT deters foreign buyers then it won’t raise any significant tax and similarly if it works in terms of increasing revenues, it can’t have put off non-residents.
“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 6-12 months; there is a limit to how much the property market can absorb.
“The market will eventually adapt but it will be sellers not buyers that experience the impact of this, as no doubt the additional cost will be factored into the amount paid. Even if buyers aren’t non-resident, anyone well advised will understand that the resale value of an asset that they are considering buying (particularly in PCL) will be negatively impacted if the pool of buyers wishing to eventually purchase is diminished further.
“Non-residents do not receive any additional tax breaks when it comes to capital gains, inheritance tax or tax on rental income. In fact, the majority will pay the additional 3% surcharge that was introduced on second homes and investments. If they own in a company, they pay an additional annual tax pegged to the value of their property.”