The 2012 Budget – the property perspective from Zoopla

March 21, 2012 at 1:51 PM 3 comments

1. Introduction of a 7% stamp duty land tax on £2m+ homes

A 7% stamp duty land tax on this property with a current asking price of £2,150,000 would cost the buyer £150,500

The Government decided to exclude an annual mansion tax levy from the Budget, but from Midnight tonight, a new Stamp Duty Land Tax rate of 7% to be introduced on property for sale over £2 million

Here’s our view: “The UK already imposes the highest property taxes in the world, as a proportion of GDP, with the top-end of the market bearing the biggest burden. The introduction of a penal 7% stamp duty rate on properties purchased at over £2m is flawed and misguided in our view. The expectation that this new rate will generate £1.5bn is at odds with our research which shows that had this 7% rate been in effect over the last two years, it would have only generated £634m in revenue. And with 77% of properties sold over £2m in London this is as much a tax on Londoners as it is on the wealthy.

“This move will not only affect the wealthy but is likely to have an adverse impact on the entire property market. We’re likely see a slump in activity from buyers at the top level and this will have a knock-on effect all the way down the chain. And whilst the government has stated that it wishes to crackdown on stamp duty avoidance schemes, this new rate is only likely to encourage the wealthy to find even more ways to avoid paying it. Unfortunately, the economics of this hike don’t measure up to the populist moves behind it.”

Regional breakdown of properties sold over £2m in the last two years

Region Av. sold price – last 2 yrs No. of £2m properties sold
East Midlands £2,448,333 6
East of England £2,494,688 90
London £3,375,860 2059
North East England £2,683,333 9
North West England £2,690,353 43
Scotland £2,197,123 29
South East England £2,794,706 509
South West England £2,657,855 76
West Midlands £2,694,545 11
Yorkshire & The Humber £3,775,000 2
Total £3,195,255 2834

Source: Zoopla.co.uk

London Borough breakdown of properties sold over £2m in the last two years

London boroughs Av. sold price – last 2 yrs  No. of £2m properties sold
Barnet £3,230,212 82
Brent £2,553,000 7
Bromley £2,704,778 18
Camden £3,498,393 256
City of London £2,330,000 3
Croydon £2,642,500 6
Ealing £2,433,333 3
Enfield £3,287,500 4
Greenwich £2,615,000 5
Hammersmith & Fulham £2,922,685 139
Haringey £3,553,219 32
Harrow £3,023,333 3
Hillingdon £2,636,500 10
Hounslow £2,605,874 33
Islington £2,667,725 36
Kensington and Chelsea £3,640,483 672
Kingston upon Thames £4,055,571 14
Lambeth £2,619,588 17
Lewisham £2,850,000 1
Merton £3,376,626 83
Redbridge £2,262,500 2
Richmond upon Thames £2,735,335 106
Southwark £2,586,417 30
Tower Hamlets £3,002,324 10
Waltham Forest £2,770,000 1
Wandsworth £2,683,433 107
Westminster £3,572,480 435
Total £3,355,865 2115

Source: Zoopla.co.uk

2. Stamp duty avoidance clamp down

7% stamp duty land tax payable on this property would be £1,050,000

Ahead of this budget, Chancellor George Osborne confirmed he will be “coming after” stamp duty avoidance with “aggressive” new measures in this week’s Budget.

He has confirmed: 15 per cent charge on transfers of £2m plus homes into corporate ownership

Here’s our view on the Government’s move to clamp down on stamp duty avoidance: It’s difficult to argue against a clamp down on stamp duty avoidance as, for the vast majority of people, stamp duty is an unavoidable truth that comes with the territory of home ownership. But knowing that some buyers are able to avoid it through various financial means is a difficult pill to swallow. Ensuring the Treasury is in receipt of all the tax due on all UK property transactions will help avoid a situation in the future where additional property levies are needed to make up the fiscal short-fall. However, policing the clampdown will be difficult and there are no guarantees that some transactions won’t slip through the net. There is no doubting the Government’s intention, but it remains to be seen if this will be an effective measure.”

3. Changes to first-time buyer stamp duty regulations

This was not mentioned in the Budget, however…

In 2010 the Government removed stamp duty for First Time Buyers on transactions up to £250,000 in a bid to spark sales and get chains moving. Two years later the 1% stamp duty tax will return (this Saturday 24 March) for property for sale purchased between £125,000 to £250,000. This was not mentioned in the Budget, but is confirmed here.

Here’s our view: “As a proportion of GDP, the UK already has the highest property taxes in the world. But stamp duty for first-time buyers, in revenue terms, is the fiscal equivalent of a mosquito on a rhino’s back. The Government believes the stamp-duty holiday has not been significant in encouraging first-time buyers into the property market and that is why they are scrapping it, but there are a number of other factors which have prevented the surge of buyers the government was originally hoping for. High inflation, low savings rates and strict lending criteria have all contributed to low first-time buyer numbers, but these are starting to ease. Inflation is falling, and lenders are becoming more flexible in their criteria so now is not the time to throw another obstacle onto the tracks.

“Over the last two years the taxman has missed out on just £650m from first-time buyers who have bought within the £250,000 threshold but the 5% rate on properties over £1m, introduced at the last budget, has pretty well covered this shortfall netting nearly £550m in just twelve months. Given the importance of first-time buyers in providing the first link in the property chain, the government should be doing everything possible not to deter these buyers and allow them to energise the rest of the market. This will lead to a higher levels of activity further up the property ladder and, in turn, higher tax revenues to bolster the Treasury’s coffers. However, it appears that the Government is focusing on a short-term strategy and while initiatives such as the NewBuy scheme are intended to compensate, in reality this will only help a small number of buyers and do little to assist the property market as a whole.”

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3 Comments Add your own

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    Reply
  • 2. Lisa  |  April 10, 2012 at 2:58 PM

    When on Earth are they going to make this a progressive tax. It’s completely unfair – particularly on people who live in the south. If they’re not going to make it progressive they should link it to council tax bands or something. ie the people who live in the most expensive ‘x’ percent of houses, relative to their local area, pay the highest rate.That way, for example, someone who lives in a £500k house in Hull pays 7% and soneone who lives in a £350k house in London pays 3%.

    Reply
    • 3. Chris  |  May 20, 2012 at 11:49 AM

      SDLT is a progressive tax – A progressive tax is where the rate increases as the amount to which the rate is applied increases e.g. income or SDLT. SDLT cannot, however the rate is applied, make a 5 bedroom house in Chelsea the same price as the equivalent house in Hull. If one of the objectives for government is to redistribute wealth then the revenues raised from SDLT should be used to incentivise or even build new housing stock in the areas where house prices are at a premium rather than rely on the provision of affordable housing through the planning obligations of residential developers alone.

      In my opinion SDLT should be applied “more progressively” for the residential market , with a percentage increase lets say every £250K increment. This should reduce significantly the the “slab” effect seen currently. As long as the revenues raised match current levels, (this being achieved by adjusting the rate and frequency) government should give it a go. Calculating the tax due should be relevitively trouble free, as it is only applied once on each transaction.

      Reply

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