As soon as Dubai resident Mohy Shams got to know about UK finance minister Rishi Sunak’s stamp duty holiday for the purchase of residential property last July, he seized the chance to make a saving.
Briton Mr. Shams, who has resided in Dubai since 2014, already possesses five properties in the UK and two in the emirate as part of an investment portfolio.
By finishing his deals before March 31 when the tax breaks end, Mr. Shams will only pay £8,400 ($11,497) in Stamp Duty Land Tax (SDLT), on a £100,000 property in Stockton-On-Tees, Country Durham, and a £180,000 off-plan home in Bicester Village, Oxfordshire.
After the deadline, neither only the tax holiday disappears, but also Mr shams will be subject to a 2 percent extra fee on purchases by non-resident buyers. If he had given time to close the deals, this would have increased his total tax bill to £15,100, which implies he will grab a total saving of £6,700 by completing earlier.
“The stamp duty holiday encouraged me to pull the trigger before March 31 because I was getting a great deal,” said Mr. Shams, a senior executive at a global research company.
Britain’s property industry ended 2020 on a record high, with costs of almost 7.3 percent from 2019, as per the UK bank Halifax, the maximum growth in six years as the property market rushed amid a raft of policy measures and a change in how people want to live.
Nevertheless, the “stamp duty cliff edge” could witness the sector’s services industry lose billions of pounds due to collapsed deals, as per the property analysts TwentyCi.
One out of five of the 457,358 purchases made subject to contract at the end of 2020 is probably to fall through, whereas 31,250 of the 125,000 sales agreed this month will probably be abandoned.
In addition, the end of the holiday has resulted in a backlog in agreement as the logistics of the housing market have not been able to agree with the demand.
As it is not known how Mr. Sunak will deal with the stamp duty holiday in the MArch budget, there are calls to make the holiday permanent or scrap the tax altogether.
However, David Hannah, founder and principal consultant of Cornerstone Tax, stated this is “unrealistic given the levels of public debt and the £12 billion tax take it generates each year”.
“But having such a strict cut-off point, particularly in such a turbulent and difficult housing market and economic climate could result in a catastrophic drop in demand and prices,” he said.
As per the current tax break, people purchasing homes costing up to £500,000 in England and Northern Ireland pay no stamp duty, with a reduced rate of 5 to 12 percent for homes more than that value. For someone purchasing a £500,000 property, the saving is worth £15,000.
If the property is a buy-to-let or a second home, an additional 3 percent SDLT applies.
But by the end of March 31, the holiday is dated to disappear, with overseas buyers having to pay an extra 2 percent extra charge.
“Basically you are paying an extra 5 percent as an overseas buyer,” said Camilla Dell, managing partner at Black Brick, which helps Middle East investors purchase property in the UK. “This is because they must pay the 3 percent for buying a buy-to-let or second home as well as the additional 2 percent.“
Henry Faun, partner and head of Knight Frank’s Middle East private office, said the new surcharge is expected to “apply to non-resident buyers regardless of the type of buyer (e.g. company or individual) subject to very few exceptions for specific collective investment vehicles such as REITs [Real Estate Investment Trusts]”.
Mr. Shams, whose portfolio is set up in a limited company, said he will continue to invest in the UK despite the increase.
Other investors could be put off, says Louise Reynolds, who runs Property Venture, a property agency based in Surrey where she works as a buying agent for expatriates looking to purchase in the UK.
She has experienced a flurry of interest from clients providing to make a saving in the run-up to the SDLT changes.
One of the clients from Dubai with a budget of about £250,000 hopes to save £6,700 in stamp duty by gaining the deal across the line before March 31.
“The surcharge will really make ex-pat investors think twice. They will be more price-sensitive and may well only move if they can get the distressed stock to try and compensate for the increase in tax,” said Ms. Reynolds.
“All of these fees can be offset against capital gains tax when they exit so it’s not completely lost money but it depends on what their strategy is. Certainly in the high price brackets, it’s going to make a big difference.”
However, Mr. Dell said the tax alteration will not deter her high net worth buyers who are shopping for central London properties.
“The stamp duty holiday has been a nice to have but it certainly hasn’t made the difference to whether any of my clients want to buy or not,” said Ms. Dell, whose clients target properties worth over £1 million.
“Effectively it saves them £15,000 so in the scheme of things it’s not a game-changer. The ending of it for my clients is almost irrelevant. It has far more relevance for people buying outside London for below £500,000, where every penny matters, as opposed to the high net worth, overseas buyers.”
Rather, Ms. Dell said the light of focus is to beat the deadline for the 2 percent extra charge coming on April 1 for anyone who is a nontax resident in the UK.
“That has far more consequence than the ending of the stamp duty holiday because basically, you are paying an extra 5 percent as an overseas buyer as you have the 3 percent plus the additional 2 percent,” she said.
As a result, Ms. Dell said the company had a very engaging start to the year with six new clients approaching on board with an altogether budget of more than £20m.
“I’m seeing really strong levels of demand and trying to do these transactions when you are not living here is a challenge with travel restrictions, quarantine – there are all sorts of barriers,” she said.
“Having said that, London, even with this additional 2 percent surcharge is still pretty competitive in a global context when you compare property taxes here with New York, Singapore, Hong Kong or Sydney,” she said.
Mr. Faun of Knight Frank accepted that his UK-focused clients will be unfazed by the tax changes.
“If there is an additional closing cost, we expect our clients who may currently take a five to 10 or more years investment horizon to extend this a little,” he said.
“The demand for homes in London and the UK is an emotional purchase for Middle Easterners to use for themselves and their families to enjoy whilst in the UK, usually on holiday. For the relatively small changes coming up, we do not foresee this having a significant dampening impact on the demand for UK homes.”