UK Stamp Duty Regime Weighs on Property Market
By: Emma Gettings
As the UK’s home building rate remains woefully inadequate, the UK’s Stamp Duty payment regime has come under fire as one of the culprits. Property management and investment firm Jones Lang LaSalle’s (JLL) chief executive, has labelled the tax politically motivated and nothing more than a hindrance on the property construction and sector and general housing market.
“For long-term development, stamp duty is definitely harmful, because the stamp duty in itself doesn’t create any value,” JLL’s global chief executive Christian Ulbrich said, according to a Daily Telegraph report. “It’s an additional cost that makes development more unattractive and it has to be considered in the pricing.”
Stamp duty is a regular bugbear when it comes to the UK’s expensive housing market, although Mr. Ulbrich’s comments are stronger than some previous criticism.
“Stamp duty can add a notable amount onto the already expensive cost of buying a home,” said Wimbledon estate agent Robert Holmes. “It’s also one of the few things that all aspects of society like to have a grumble about.”
However, while Conservative, then Chancellor of the Exchequer George Osborne in 2014 agreed that changes should be made to the system, the tweaks he introduced didn’t lower the costs substantially. Nor did they ensure taxes paid on property purchase would be used for the benefit of the housing market.
Indeed, there remains a large increase in stamp duty tax payments from 5% to 10% when the price of property rises above £925,000, even while the rate of residential construction remains too low and prices are still rising.
“There’s nothing wrong with asking the rich to contribute more than the less well-off, but when it comes to property it isn’t always that clear cut,” said Andrew Reeves, Pimlico estate agent. “Because of the lack of building in recent years, property values have risen sharply, which means there are now a lot more £1 million houses in the UK which will be subject to that higher stamp duty rate.”
However, JLL’s Mr. Ulbrich isn’t just railing against the additional, large expense stamp duty adds to a residential property purchases with little prospect of receiving any actual benefit from it. He also said that the UK’s Stamp Duty system works to stifle activity of private sector Buy-to-Let (BTL) landlords and home-builders too.
Specifically, landlords now face an additional 3% surcharge on properties they buy worth more than £40,000. This works to, not only limit purchasing activity by investors, but it also pushes rents higher, as those who do continue to buy more property, seek to recoup some of their additional costs.
For builders, meanwhile, particularly smaller construction firms, stamp duty has to be factored in to the eventual sale price. The act of building and selling residential property has to be profitable or companies wouldn’t do it, so the price should reflect that. But, in order to sell the finished product, it has to be affordable for the area and target market – who will have to pay stamp duty on top of the purchase price.
“If it’s just one purchase of an affordable home for one family, once in a lifetime, then a stamp duty tax would be fine, but it isn’t,” said Newington Green estate agent M&M Property. “For investors in particular, which the UK’s rental sector is heavily reliant on, they’re paying stamp duty over and over again and at a higher rate, which does add up and is sure to make some BTL landlords think twice about staying in business.”
When you look at all the details then, it’s actually pretty easy to understand why JLL’s Mr. Ulbrich has taken umbrage with the UK’s Stamp Duty land tax. But, as the system has been around for so long already with few changes made, it’s unlikely that we’ll witness any extraordinary changes that will either see stamp duty taxes used to improve the construction sector, or cut to reflect the multiple purchases made by home-owners and the higher price of property.
Written by Gurleen, at Property Divison