How the Budget hit home
With little room for manoeuvre on the economy for Chancellor George Osborne, there were few surprises in the 2012 Budget. The bad news was for those owning properties valued at more than £2m. As of 22nd March 2012, the purchase of such properties were subject to a new stamp duty land tax rate of 7%, up from 5%. Anyone in the process of buying a £2m property would have seen their bill for stamp duty instantly rise from £100,000 to £140,000.
In addition, residential properties worth over £2m and bought by “non-natural persons” – such as corporate bodies or collective investment schemes – will attract stamp duty of 15%. The Treasury also plans to consult on proposals to make a large annual charge on £2m residential properties that are already owned corporately. This is all designed to catch wealthy property owners who have sought to avoid paying the tax by buying their property through a company. They were also previously able to avoid paying stamp duty by transferring their property into a trust at a nominal sum below the £125,000 stamp duty threshold. That loophole has now been closed and the Chancellor made it clear that he would “move swiftly, without notice and retrospectively” in the event that homeowners found ways to circumvent the new rules.
REITs are being presented as a potential lifesaver to social housing, which is seeing severe cuts in Government grants and shrinking alternative sources of funding
Figures from Land Registry suggest that there are around 45,000 homes in the UK valued above the £2m threshold, with the vast majority located in London. While sales at this end of the residential property market appear to be less sluggish than at the more low cost end, it is not thought that the change will contribute a vast amount to public finances. Osborne’s own figures estimate £150m tax in the next year.
Another change sees the capital gains tax (CGT) regime extended to gains on the disposal of UK residential property by non-resident, non-natural persons ie corporate bodies/companies overseas. However, the British Property Federation (BPF) warns that unless this is handled sensitively the change could reduce the financial attractiveness of investing in UK residential property. Funds and corporate investors use offshore structures to hold their assets and rely on capital growth to generate returns. It suggests that the consultation should ensure that such investment, badly needed by the UK, is not deterred by the CGT change.
Announcements on real estate investment trusts (REITs) were largely welcomed. REITs are a tax-efficient way of investing in commercial property. They are companies, or groups of companies, that manage a portfolio of property with the emphasis on property investment rather than development.
In last year’s Budget statement, the Chancellor abolished the charge that property companies had to pay to convert to a REIT and promised to relax a rule about the need to have diverse institutional investor ownership among other things. These proposals have been through consultation and included in the 2012 Finance Bill. Patrick Clift of the BPF describes the process as working on a relaxed timetable while also ensuring that things are done properly.