Property funds to boom in popularity?
The new stamp duty tax changes in the recent Budget mean millions can be saved by buying smaller property or going indirect
Property funds are set to rise in popularity following the Government’s move to change the way Stamp Duty Land Tax (SDLT) is structured, one firm has claimed.
New taxation means family offices and high net worth investors are more likely to buy property indirectly through funds, rather than directly, to avoid high tax, says property investment company London Central Portfolio (LCP).
The Budget saw the Government introduce a 15% SDLT rate for residential properties worth more than £2m that are bought by some companies, trusts and other structures. It is also consulting on an additional tax on properties already bought through this structure.
LCP said that while buying a £20m property through a family trust will now incur tax of £3m, buying the equivalent sum in smaller units will lead to a £800,000 tax bill.
However, many high-net-worths will be put off by the difficulties and other costs involved in compiling such a portfolio, leading them to property funds, LCP said.
But Marcus Langlands Pearse, director of UK property at Henderson Global Investors, believes that those buying multi-million pound residential properties are unlikely to make a strategic move into funds.
“How many people buy £2m homes as purely an investment property, rather than to own and use as a property,” he said, adding, “If people are willing to commit to a multi-million pound flat in the likes of One Hyde Park then there is a reason behind that.”
Langlands Pearse added that the overseas investor likely to be caught by this increased tax “loves the concept of bricks and mortar and owning land”, which would not be achieved by owning indirectly through a fund.
The top end of the market has seen a boom in sales recently, with research by Lloyds TSB showing that sales of homes worth £2m or more rose by 5% in 2011, when compared to 2010 and 2% more than the peak in the market in 2007.