Industry Lines Up Against SDLT Proposals

There is growing concern that the coalition government has not "got it" about the problems affecting the housing market's volume end - hence worsening issues like poor mortgage availability and even poorer build-rates for much-needed new homes.

But don't think criticism of the coalition is restricted to the volume part of the market.

I was recently fortunate to chair a round-table session of some of the top-end residential industry's leading players, pulled together by Hamptons International to discussing the coalition government's proposals on stamp duty, capital gains tax and an annual charge relating to homes at the top end of the market, above £2m.

For those not familiar with the proposals - announced by George Osborne in the March 2012 Budget - they are:

1. SDLT band of 7% on the purchase of UK properties over £2m and where these properties are bought by 'non-natural' (ie, foreign) persons, the SDLT rate increases to 15%;

2. For UK properties worth over £2m and already held by a 'non-natural' person, an annual charge from April 2013 would be levied, likely to range from £15,000 to £140,000;

3. The introduction of CGT on residential property owned by 'non-natural' persons from April 2013, charged on disposal if the value (and not just the profit) exceeds £2m.

Formal government consultation has already taken place on these proposals and many of the players at the roundtable - including representative from the British Property Federation, Mishcon de Reya, Price WaterhouseCoopers, the Cliff Gardiner Buying Agency and Hamptons International itself - had been central to discussions with HMRC and the Treasury over the effects of the proposals.

At the roundtable the players were all strikingly in agreement over an industry-wide approach to the issue, summarised as:

- acceptance that the government should target tax avoidance and that a 7 per cent SDLT level on homes valued above £2m would be fair in the current fiscal climate;

- a firm belief the proposals were hastily introduced - through political expediency, naivity or ignorance - and have wider-ranging unexpected effects;

- these effects include possible knock-on effects for Inheritance Tax liabilities, significant disincentives for developers and industry investors to buy land and/or buildings for new developments; and a significant drop in transaction volumes for homes valued over £2m - as much as a 33 per cent drop cited by Hamptons;

- a danger that central London in particular may no longer be seen as being 'open for business' by international investors, who may instead invest either in other countries' property markets or possibly other asset classes instead of UK residential;

- further danger that properites valued just over £2m would have to be reduced, having a further knock-on effect 'down' the price chain, with some signs that international owners are already divesting their portfolios of London properties now, ahead of the possible introduction of the new measures next spring.

The likelihood now is that the government will respond to these consultations in its autumn statement, due in early December. Roundtable participants hoped this would see a targetting of exemptions from the measures - ideally developers, residential property funds and those in the 'business/industry' side, rather than those individuals who should be rightly targeted for nakedly engaging in tax avoidance.

But will this happen? Roundtables are, by their nature, a mix of information exchange and speculation.

Everyone reported similar concern that one of the few parts of the UK housing market to work satisfactorily was being hurt by the coalition proposals. The problem is, no one can predict whether the political horse-trading behind these proposals may not be repeated when the government responds to the consultation.

Suddenly, a coalition does not look such a good idea after all.

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