"Even before we consider the measures designed to combat the coronavirus crisis, Boris Johnsons first budget as prime minister still had a lot to unpack for the property sector. "
Alpa Bhakta, CEO of Butterfield Mortgages Limited
Even before we consider the measures designed to combat the coronavirus crisis, Boris Johnson’s first budget as prime minister still had a lot to unpack for the property sector.
Having previously touted both himself and his government as having ambitious plans for post-Brexit Britain, many eagerly awaited the first illustration of his grand vision for the country.
Many of the hotly anticipated reforms were postponed until later this year due to the escalating global public health crisis. However, some measures that had been included in the 2019 Conservative Party election manifesto did make their way into law. Specifically, Chancellor Rishi Sunak announced that the Stamp Duty Land Tax (SDLT) surcharge for overseas buyers would be implemented at the beginning of April 2021 and would actually be set at 2%, rather than the expected 3%.
Despite not being as high as originally proposed, this change will still affect the property market through the coming years. As such, it is important to reflect on the SDLT reform, the government’s reasons for the change, and the potential impact it could have.
Changes to SDLT for non-UK buyers
This additional cost was originally proposed by the Conservative government as a means to curb increasing property prices and help domestic first-time buyers make their initial step onto the property ladder. Fuelled by fears of overseas property investors taking advantage of the fluctuating value of the pound to buy UK real estate, and thereby pushing up prices further, government-affiliated members of the House of Lords consistently confirmed that this surcharge would be introduced in the next budget―though at a 1% higher rate than what has now been announced.
The reform means that, after 6 April 2021, UK property purchases by overseas buyers could incur both the 3% surcharge on second home and buy-to-let purchases introduced in 2016, as well as this new 2% SDLT surcharge. For example, a property purchased for £800,000 would now face an accumulative £40,000 in stamp duty if bought by a non-UK resident.
Whilst nowhere close to similar measures by other countries―such as Hong Kong’s 33.3% additional property cost for non-residents―it will undoubtedly have wide-ranging affects for both Treasury revenue and the property market.
What does it mean?
Firstly, there could be a rush among international buyers for purchases to be completed before the tax applies next year. The government is currently basing its forecasts on such a rush, predicting an additional £250 million in overall tax revenue from SDLT on purchases before April 2021, and an extra £105 million in 2022-2023 after this surcharge is fully introduced.
Admittedly, it is difficult to speculate on the market as a whole given that more COVID-19 induced economic stimulus may be announced. However, in the months following the December 2019 general election property prices began to experience a recovery. The question now is how the combination of tax reforms, radical government measures and the broader ramifications of coronavirus impact the UK property market in 2020 and beyond.
Alpa Bhakta is the CEO of Butterfield Mortgages Limited. Part of the Butterfield Group and a subsidiary of The Bank of N.T. Butterfield & Son Limited. Butterfield Mortgages Limited is a London-based prime property mortgage provider with a particular focus on the needs of UK and international HNW individuals.