08 Nov 2018
The UK autumn budget 2018 announced a proposal to increase the surcharge on residential properties – that will be further be revised in January. Some foreign investors are finalizing deals before the implementation of new regulations and tax hikes on properties in England and Northern Ireland. Earlier, it was assumed the duties will increase by 3 percent, but, the proposed rate is lower as compared to previous expectations. Further, this has been taken as a controversial decision, at the time, when the market is already facing a number of issues.
This year most buying was need-based and the highest number of transactions took place in small and midsized homes that included a number of first-time buyers. The reason for the increase in the sale of small homes is that there exists a severe shortage of large-sized affordable homes in the country.
Stamp duty implications
The stamp duty is given on total value of the home, on the completion of a transaction. It was introduced on 1st April 2016 and appears as a barrier to the buyers, especially, those who already own one. Approximately, 3 percent of the tax applies, in case of first time ownership, even in conditions of inheritance, or, having an interest in a trust that owns it. It even applies to properties bought outside the country.
In 2017, first-time buyers were relieved from the duties for transaction below £500,000, but if the buyer already owns a property, or inherits one, he is liable to pay.
Foreign investors buying before tax policy changes
The rise in tax will increase oversea buyers’ operation costs in the region and this can be negative for the realty sector, the political and economic situation. It is also worried that it will reduce the inflow of overseas students into the country. However, a number of Asia based investors bought, or are concluding transactions, before the new taxes are approved. In the last few weeks, some of the wealthy buyers spent approximately £400 millions in central London, notwithstanding, there is an indication of a slowdown in the market.
The overseas transactions included the £105 million penthouse apartment and flat, which were historically US embassy and Canadian High Commission, and were bought by Chinese buyers. A similar property was sold for £50 million - the penthouse overlooking the Queen’s Buckingham Palace to Chinese buyers.
Scope for properties to grow in 2019
The average house price growth in the UK may have reached the lowest since May 2013 but the outlook is still highly positive. The Nationwide figures find the year-on-year growth was 1.6 percent, where there exists a high scope for price gain, and activities to pick up in 2019 post Brexit. Such indications are supported by the Savills forecast that predicts the price will increase by 14.8 percent in the next five years.
Modest growth is expected in the South East and East of England in the range of 2 percent in London, whereas, North West and East Midland prices are expected to grow at an annual rate of 3 percent and West Midland, Scotland and Yorkshire rate is expected to be in the range of 2.5 percent.
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