As we all know, the Chancellor of the then coalition government introduced penal Stamp Duty rates in the Autumn Statement of 2014, at the higher end of the property market, whilst at the same time gave away ‘Tax bribes’ at the lower end of the scale. This was done to supposedly reform the Stamp Duty Calculator from a hitherto ‘slab-sided’ system to a more ‘progressive version’ and to demonstrate that they could tax the ‘middle/upper classes’ just as easily as an aspiring Labour government could, with their Mansion Tax proposals at the time.
The only difficulty was, that at the lower end of the market (i.e. under £ 1million), by reducing Stamp Duty, it served to stimulate an already excited sector that had been growing by 8-10% across the UK. Whilst this is fine for anyone owning an existing property it, nevertheless, further disenfranchised the struggling first time buyer and whilst Help-to-Buy is a constructive initiative, it only relates to 3% of the market.
Loser No1: The first time buyer is certainly not happy.
Then, by increasing Stamp Duty to 12% (or 15% for corporate purposes) it has slowed the market above £1million and the prime/super prime sectors, particularly in London, where activity is down by over 50% and prices are easing by up to 10% per annum. There is illiquidity now in this sector and that means that sellers cannot move because of the shortage of purchasers and only the ‘need-to-buy’ will endeavour to move, despite the cost of the transaction, which when you include agents/solicitors fees, is now an eye watering 15%.
Loser No2: You could say property owners in this sector are not happy either.
Now we come to the Buy-to-Let sector where the Chancellor has imposed two draconian changes i.e. increasing Stamp Duty on all purchases in this sector by 3% from April and limiting of Tax Relief to the lower tax band that is being introduced in 2017. This will result in more landlords selling their properties and a smaller private sector rental pool, with rents rising, that will further prejudice the first time buyers who are presently forced to rent since they cannot buy.
Let’s face it, Buy-to-Let investors have turned to these investments as a ‘quasi pension’ since successive governments have withdrawn tax benefits for contributions to private pensions over the years and maybe more so in the forthcoming Budget in March 2016, if rumours about this are to be believed. They provide a useful alternative to protect their family’s future and to shape their destiny. What’s wrong with this?
Loser No3: Buy-to-Let investors are clearly not very happy and the first time buyer is ‘hammered’ twice by these changes at the same time.
Now we come to International buyers and Non Doms. We heard all the ‘whingeing and whining’ that ‘Johnny Foreigner’ is ‘hoovering’ all our precious private housing stock since we are building half of the minimum number of homes that we need in the UK i.e. 200,000 per annum. Well, the Chancellor has certainly decimated the market for Asian investors and long gone are the days where developers used to sell their ‘wares’ at exhibitions in Hong Kong/China/Singapore/Malaysia. In fact, these foreign nationals are ‘dumping’ deposits with ‘gay abandon’ from commitments made over the years, particularly in the east London region, rather than to proceed with the purchaser. Certain quoted nationwide developers, with exposure to this region, have had their shares ‘marked down’ to account for the massive stock overhang that they are suffering from. This is not going to improve sentiments for them to develop more sites elsewhere in the UK that will assist the government meet its private housing target.
If we need more homes built in the UK why, oh why, do the powers that be, not rescue control of planning decisions from the Local Councils and pass this vital task to the Department of Environment where they will focus exclusively on planning criteria instead of the regime at present that comprises ‘nimbyism, localism, conservation, environmentalism, tree preservation and the political aspirations of the local councilors where vital decisions are ‘moth-balled’ for the four months prior to local elections.
We all know the Chancellor’s problem with ‘moral repugnancy’ of tax avoidance which, may I remind you, hitherto was perfectly legal, but I wonder if the ‘Great British Taxpayer’ bargained on spending their precious money to get rid of these valuable people, most of whom pay tax anyway i.e. American citizens who pay worldwide tax and 95% of the Non-Doms who pay tax in the UK. They bring their valuable foreign earnings, buy our consumer goods, invest here and create jobs. Other competing nations are only too pleased to welcome them to their respective cities i.e. Frankfurt, Geneva, Dubai and Monte Carlo and would not believe their good fortune if they did – after all, our loss is their gain.
This is a classic example of ‘policy on the hoof’ and where the ‘cure is worse than the curse!’
Loser No4: Foreign Internationals are certainly not happy to leave these shores.
Looking at these Tax changes holistically, it does appear that the Chancellor has been somewhat ‘heavy-handed on the tiller’ instead of ‘caressing’ it – if you will forgive the nautical parlance. As we all know, governments are notoriously clumsy when they try to interfere in markets and this is a perfect example. The irony is, that the Chancellor is trying to cool the Property Market and raise money at the same time, but has now created the ‘worst of all worlds’ for the Country.
Loser No5: The government should not be happy since it is losing money from each and every one of the fiscal changes referred to earlier.
It just doesn’t make sense. The Treasury is receiving less Tax Receipts as the Economy slows down and at the last Autumn Statement in 2015 the Chancellor promised to reduce the Budget Deficit from £75billion to £45billion. How on earth is he going to achieve this by the measures that he has imposed in relation to the Property Market?
As you can see, everyone has come out a loser and with the economy shrinking and Tax Receipts generally lessening, this is no time to cause a ‘self-engineered’ recession.
There is no question that Osborne did lead us out of recession, but I am afraid he is now making fundamental errors and he is, perhaps, underestimating the vital stimulus that the Property Market provides to our consumer lead economy.
I fear that he is ‘tightening the tourniquet around the neck of the golden goose’ and it is no wonder that the ‘golden eggs’ are scarce.
What impact will the Referendum in June 2016 have on the Residential Property Market?
In Or Out – That is the Question