The Chancellor Rishi Sunak revealed in his first Budget plans to introduce a 2% stamp duty surcharge on non-UK tax residents.
While the Budget was largely focused on protecting the economy from the coronavirus outbreak – with a £30 billion package unveiled to help small and medium-sized businesses, boost the NHS and provide sick pay support to companies with fewer than 250 people – there were a number of housing pledges, with the extra tax on overseas buyers the most high-profile.
The implementation of the levy was widely anticipated, but many were expecting it to be 3% rather than 2%, as the Conservatives proposed in the lead-up to the general election. Its manifesto promise had been more vague, saying – in relation to ending the blight of rough sleeping – that it would help ‘pay for this by bringing in a stamp duty surcharge on non-UK resident buyers’.
The reduction in the surcharge may be an attempt by the government to appease those operating in the prime parts of the UK property market, who had been less than impressed with the proposals.
What’s the surcharge and why is it being introduced?
The 2% surcharge applies to companies, individuals and expats wanting to move back home. It’s owed on top of the existing 3% stamp duty surcharge on buy-to-let and second homes (if applicable) and existing stamp duty rates for mainstream buyers.
The thinking behind the policy, first mooted by Theresa May at the Conservative Party conference in October 2018, is to make it easier for domestic buyers to purchase homes that might otherwise go to wealthy individuals or companies from overseas, who then keep them as investments or rent them out at ’inflated’ prices.
The Tories have previously referenced figures which highlight that 13% of new London homes were bought by non-residents between 2014 and 2016. In addition, the party has stated that it's unfair that foreign individuals and companies who do not pay UK tax can buy homes as easily as those who already live here and contribute.
The additional surcharge only applies to homes in England, where the majority of overseas buyers purchase properties – mostly in London and the South East – and will come into force from April 2021. It had been suggested previously that the surcharge would be introduced immediately, so this might again be an attempt to keep PCL on board by allowing big-money investors a 13-month period to plan for the new tax accordingly.
Sunak said the money raised by the additional surcharge – expected to be around £650 million – will be used directly to assist 6,000 rough sleepers into permanent accommodation.
The surcharge represents a beefing up of the 1% tax consulted on during Theresa May’s time as Prime Minister but a slight downgrading of the 3% proposal put forward by the Conservatives during last year’s election campaign.
Under those proposals, it was stated that a wealthy overseas buyer of a £1.5 million home in London would pay £183,750 in stamp duty compared with £93,750 for a Londoner purchasing the property for their own use.
How did the announcement go down?
Milton Rodosthenous, director of online auction service LetsBid Property, said the stamp duty surcharge for non-UK tax residents represented positive news for domestic property buyers and landlords.
“Competition from overseas buyers - which has been rife in recent years, particularly in the UK's largest cities - is likely to reduce significantly,” he said.
“However, the additional tax could pose problems for the Prime Central London market, in which there is currently a huge amount of overseas investment. The market has been struggling for several years since George Osborne's stamp duty reforms in 2014 and this latest move could see a further reduction in prices and activity.”
He added that actively discouraging overseas investment with a 2% surcharge could prove to be troublesome. “Perhaps a 1% surcharge on overseas buyers - as originally mooted by politicians - would be fairer and more effective in creating a level playing field for all property purchasers?”
What will happen next?
The introduction of the extra stamp duty surcharge – which mirrors the action taken by other international cities such as Vancouver, Singapore and Hong Kong, to limit the impact of overseas investment – won’t happen for more than a year, which means there won’t be the anticipated mad rush by buyers to act very quickly before it comes into play.
Meanwhile, Richard Donnell, director of research & insight at Zoopla, said ‘there will likely be some increased activity among non-UK residents looking to purchase before the new rules come into force’.
“Dollar-denominated buyers may find that the additional cost is partly offset by currency movements, with an effective discount of more than 20% for those buying UK property now compared to the summer of 2014 – purely due to movements in the pound,” he concluded.