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Housing market in a ‘parlous state’: No more new taxes, plea to Chancellor

Chancellor Philip Hammond is being warned that the property market is “in a parlous state”.

He has been told that any further property taxes could harm the Government’s already dwindling Stamp Duty takings.

The plea comes as the Government plans to introduce an additional Stamp Duty levy of 1% on non-resident purchases, with a consultation due in the New Year.

But property investment firm London Central Portfolio (LCP) has warned that analysis of HMRC’s third quarter Stamp Duty receipts shows liable transactions fell 4% annually to 290,740, down 8.7% on three years ago.

Tax receipts were also down 8.2% annually, to £2.39bn.

Naomi Heaton, chief executive of LCP, said: “The fall is undoubtedly due to investors withdrawing from the market until they can see some light at the end of the Brexit tunnel.

“The toxic political climate and stagnating prices have brought ever-growing uncertainty to the residential market following several years of increased taxation.

“With the housing market in such a parlous state, it would seem somewhat imprudent for a sitting Chancellor to raise further taxes on the residential sector.

“However, this is exactly what Hammond has done, proposing an additional levy of 1% on non-resident purchases in the most recent Budget.

“The international buyer, of course, is politically a very easy whipping boy. The reality, however, is that for many new-build developments in the UK’s most prominent cities, where price points are unaffordable for the domestic market, these investors represent a significant proportion of buyers.

“HMRC Stamp Duty statistics do not paint a rosy picture of the UK housing market, with neither the buyer nor the Exchequer winning out.

“Until the Government has a clear road map for Brexit we are unlikely to see increasing transactions and therefore increased revenues.

“While it is highly unlikely that the Government will repeal any of their recent tax increases, it certainly does not seem to be the time to implement more.”

Source: Property Industry Eye

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The everyday scenarios where you could be hit with the stamp duty surcharge

You may think the 3% stamp duty surcharge is reserved for buy to let landlords and second home buyers. But these ordinary family scenarios show where unsuspecting people may be caught out by a larger tax bill.

The stamp duty (SDLT) surcharge was introduced in April 2016, adding 3% to the usual stamp duty rates on buy to let properties and second or holiday homes.

While well intentioned, the stamp duty surcharge has actually brought some unsuspecting homeowners and homebuyers into scope of the additional 3% tax bill.

Nick Morrey, product technical manager at John Charcol, says: “Like many taxes there are plenty of scenarios that have been unexpectedly caught up in George Osborne’s additional stamp duty net.

“Property transactions have a variety of nuances and mechanisms that can potentially affect the nature of a qualifying purchase. Some of these could help reduce or even eliminate this liability. Therefore, it is important to take independent tax advice from an accountant or tax adviser in conjunction with a good mortgage broker to ensure you only pay what you need to pay. It’s important to check these things as not all options are appropriate to all consumers.”

Here are three scenarios to watch for and what, if anything, you can do to minimise the charge:

1) Adding partner to mortgage and title deeds

More and more Brits are cohabiting rather than rushing down the aisle. But when it comes to finances, Brits may show more commitment to their partner via shared bank accounts and joint house purchases.

Here, Michael and his former partner bought their property together but after splitting, Michael kept the £350,000 flat. He has a new partner, Lisa, and they have baby George and the family live in Michael’s flat. Lisa also owns her own property which she rents out.

Michael was keen to add Lisa to the mortgage and the title deeds of the flat so that it is considered their family home for estate planning reasons.

But by adding Lisa onto the mortgage and the deeds, this is technically buying a UK residential property while already owning an existing property.

Michael and Lisa were told that as the mortgage was £180,000, half the consideration (the part that is used to calculate stamp duty on transfers of equity), was £90,000, meaning they would need to pay £2,700 in stamp duty.

However, the couple decided on becoming ‘tenants in common’ rather than joint tenants so Lisa would own 20% and Michael would own 80%. This reduced Lisa’s chargeable consideration below the £40,000 stamp duty threshold, helping the couple avoid the tax altogether.

David Hannah, principle consultant and founder of stamp duty experts, Cornerstone, explains further: “No surcharge is due, provided the share of the partner was kept below £40,000 in value, as the property is mortgaged and Lisa is still assuming the value of the debt to be equal to her portion. Once the mortgage is repaid, the couple should re-evaluate ownership of the property to ease inheritance issues in the future.

“Even if the share were to be gifted to Lisa, as the property is mortgaged, her assumption of responsibility for a proportion of the mortgage debt is still classed as ‘consideration’ for the purposes of calculating SDLT. Therefore, the restriction of the share to below £40,000 would still be necessary to avoid incurring the surcharge.”

However, if Michael and Lisa were married in this scenario, then HM Revenue & Customs confirms no surcharge will apply. The law on the stamp duty surcharge was changed in the November 2017 Budget to disregard transactions involving ‘exchange of interests between spouses and civil partners’.

2) Brothers inherit property and one wants to buy the other out

Steven and Tom inherited an equal 50/50 share of their grandfather’s property. Here, the resulting tax charge depends on whether the brothers already own their own properties.

Hannah explains: “Should the brother buying out the other already own a residential property, his assumption of full ownership of a separate property (presumably valued above £40,000) would attract the surcharge.

“However, should the brother (buying the other one out) not own a separate property, this would not be the case. If the property is inherited jointly and a party inherits 50% or less of the value in the three years before they make a purchase of a separate residence for themselves, the surcharge will not apply.”

3) Sisters bought a home together but want to buy separately

Ellen and Claire bought their property over three years ago as first-time buyers. But during that time, Ellen’s got married and Claire is in a serious relationship.

Currently, Ellen and her husband live in the property while Claire has moved out to live with her partner.

They now want to sell the property and buy with their respective partners, both of whom are first-time buyers.

Hannah explains the situation: “If they sell the property before they buy their new respective properties with their partners, then the surcharge would not apply. If they sell the property after they purchase their new properties, the surcharge will apply on each of the onward purchases, and will be based on the purchase price of each property.

“They would each pay the regular SDLT due on the new purchase, plus an additional 3% surcharge on each banding of SDLT – 3% on the first £0 – £125,000 of the purchase price, 5% on the next £125,001 – £250,000, and so on.”

Source: Your Money

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Can UK property market continue to be a government cash cow?

As the UK property market looks set for a period of subdued growth in the short to medium term, can the sector still deliver growing tax revenues to the UK government? This is a question which will be on the lips of many politicians who have continually milked the UK property market for increased tax revenue in times of economic stress. The opportunity to paint buy to let investors as investment opportunists was grabbed with both hands by the UK government – with all political parties happy to increase tax obligations for private landlords. However, will the government still be able to milk the sector in the short to medium term?

FRAGILE GROWTH

Even though the London housing market is set to underperform the rest of the UK, it is easy to forget that it has far outperformed the UK market in general for many years. There have been signs of London homeowners selling up and taking advantage of the “London premium” to acquire larger properties in areas outside of the capital. This could to a certain extent soften the blow for regional markets over concerns regarding the UK economy and Brexit in the short to medium term. However, even the most opportunistic of forecasts in the short to medium term do not offer very attractive growth scenarios.

TINKERING WITH STAMP DUTY

In recent times we have seen political parties right across the UK attempting to tinker with stamp duty as a means of “attacking the rich” and defending those at the lower end of the property market. The likelihood is that these moves were simply a way of currying favour with voters in the UK but there is only so much tinkering you can do before you milk yet another tax cow dry.

The situation with buy to let investors is even worse with a significant increase in tax liabilities in recent years. We know from a variety of surveys that some buy to let investors will be taking a sabbatical from the UK market to wait and see how things pan out. So, these two particular tax income streams are under pressure and likely to deliver reduced returns in the immediate future.

WHO REALLY PAYS FOR INCREASED PROPERTY TAXES?

While every politician will suggest that a tax on property investors is a tax on economic growth in the UK, this is not necessarily the case. The simple fact is that if you have a product which will cost you more to “produce” in the future then you simply increase your price and the end user will subsidise the increased costs. In this particular instance it is the private rental market which will have to bear the brunt of recent tax rises. Indeed the recent attack on those acquiring second homes/holiday homes could also backfire with local house prices likely to consolidate together with a potentially detrimental impact on local economies.

SHORT TERMISM DOES NOT PAY

Rightly or wrongly, each government in the UK can only look to the short term to consolidate its position with the voting public. An increase in taxes to subsidise public services, tax on the rich to curry favour with voters and constantly milking the property/housing market cash cow may grab the short term headlines but they can do long-term damage. Investors quite rightly demand a level playing field where they can visualise costs in the short to medium term as well as prospects for the UK economy.

The more taxes heaped onto the property market the less incentivised investors will be to invest and with UK interest rates starting to rise, albeit slowly, there will come a point where the risk/reward ratio for investment in buy to let property becomes unattractive. In the short to medium term at least, it does look as though the UK government has milked the housing/property market to the extreme and may need to look elsewhere for new tax income streams.

Source: Property Forum