It was announced in last month’s Budget that from 1 April 2021 a 2% Stamp Duty Land Tax (SDLT) surcharge will apply to buyers of homes in England and Northern Ireland who are resident outside the country regardless of nationality.
Its aim is to help first time buyers and those seeking to move up the ladder by controlling house price inflation and to raise circa £105 million a year which the government will put towards tackling homelessness in the country by building circa 6,000 homes.
It will mean SDLT on a £800,000 property will be an extra £40,000 from 1 April 2021. The 2% will be on top of the current surcharge of 3% that came into effect in 2016 for buyers of second homes. This means that many overseas buyers could be liable for both surcharges (if they also own another property anywhere in the world) and could be paying up to 17% stamp duty.
Treasury forecasts predict a surge in buyers before the cut-off date with SDLT receipts set to increase by £250 million in the coming tax year before dropping by £355 million in 2021-2022.
Central London property agents fear the recent and much welcomed return in market demand generated by the “Boris bounce” after his election is set to plummet as a result of this surcharge. The agents see it as a betrayal of overseas investors who are vital to supporting a healthy residential market and as an unhelpful message at a time when the country needs to welcome foreign investment and keep the economy driving forward particularly in the wake of COVID-19.
Naturally prime London postcodes will feel the impact heavily where overseas investment is most concentrated. There is fear amongst the property sector that this will also lead to a drop off in foreign entrepreneurs which will lead to a reduction in VAT and taxes on their employees.
However many are positive that the surcharge will not discourage foreign investment as the overseas buyers purchasing in foreign currencies will be able to absorb this extra 2%. Some also remind us that our taxes are not as heavy on overseas investors as many other cities. Even with the anticipated surcharge, an overseas buyer paying the full 17% is likely to be paying a cost that falls within the middle ranks compared to other countries overseas property investment costs.
What is clear is that there are strong views for and against the new surcharge. The short term effect is likely to see a sharp increase in completions taking place before April 2021. Irrespective of this change there is still pressure for a wider re-think of stamp duty rates in order to increase housing market liquidity and maximise any incentives the government plans to provide to the UK economy. As COVID-19 has taught us much can happen between now and then. Watch this space for further updates relating to the overseas surcharge.
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