Foreign Property Investors Face Increase in Stamp Duty
WHAT HAS HAPPENED?
Theresa May has set out plans to increase Stamp Duty on foreign investors by an additional 1% to help tackle the UK’s housing crisis, and fund a drive to tackle rough sleeping.
May, and the Tories, believe foreign investors have been taking advantage of the UK’s housing market, which has contributed to increasing house prices.
Some skeptics are suggesting it is being seen as a way to gain public support in the wake of the largely unsuccessful Brexit negotiations.
WHAT DOES IT MEAN?
Investors and companies based outside of the UK, who are investing in UK property, are currently liable for the same Stamp Duty rates as UK based investors.
With these new rules, foreign investors will have to pay an additional 1% stamp duty on the purchase price of their property
In reality, this makes little difference for the property prices at the lower end of the market – upto £300,000 as it equates to an additional few thousand pounds…not a huge impact in the grand scheme of things.
Where investors will really feel the pinch is in the London, and higher-end market, particularly the million pound plus properties as these already incur large stamp duties.
As an example, a two bed flat in Mayfair costing £1.5m will incur a stamp duty of £138,750 currently if purchased as a second property. This is already a large chunk of cash. With the new rules, investors will be required to pay upto an additional £15,000!
Savvy investors are steering well clear of the London market and focusing on areas further north where prices are still a fraction of the capital, yields are 3-4 times higher than London, and capital appreciation seems to be outperforming year on year.
Taking into account all of these factors, and the fact that the stamp duty savings are in the tens of thousands of pounds, it is no wonder investors are flocking to cities like Liverpool and Manchester.
The other factor property professionals are keeping a close eye on is the value of the pound. It is already very low, and many experts expect this to drop further over the coming months whilst Brexit negotiations continue.
The advantage of a weak pound for these foreign investors is that they are getting 20-30% more for their money than they did 2 years ago, and will likely get in 2-3 years time once Brexit is a distant memory, uncertainty has disappeared, and the pound recovered. With what is essentially a 20-30% discount on the value of their investment, an additional 1% should not be seen as a reason not to invest, and most likely will be an almost non-existent concern for those investors who see UK property as a long-term, safe place for their money.
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