Additional 2% SDLT Surcharge

Today, new Chancellor Rishi Sunak has delivered his first UK Budget after just a few weeks in the job. If that was not challenge enough, he finds himself with the backdrop of a Bank of England emergency rate cut to 0.25%, the UK braced for the impact of coronavirus as well as the UK engaged in aggressive trade discussions with the European Union.

In the lead up to the budget much had been discussed about the new look conservative government and its plan to deliver on its manifesto commitments. Specifically relating to housing and plans to fix the UK’s “Broken Housing Market” - pre-Budget rumored plans included a proposed overhaul of Stamp Duty, additional Stamp Duties on overseas and second homeowners together with a potential mansion tax on higher value homes. Much has been proposed, but what was delivered?  In reality the real news was centered around a new SDLT surcharge.

New Stamp Duty – in a clear sign that the government favour institutional investors over offshore investors it has announced a new Stamp Duty surcharge of 2% on residential property for non-residents from April 2021. The new surcharge has not gone as far as some had proposed of up to 3%, however, there is no doubt that this will have an impact on offshore investors. At now 5% on top of ‘normal’ Stamp Duty the potential impact of this new surcharge to be the following:

International investors are likely to seriously consider their investment decisions in the UK. With average house price growth in the England at 1.7% (HM Land Registry), it will on average take the typical investor more than 2 years to recover the cost of this new surcharge. Ultimately, this may well drive those investors to lower cost tax countries such as New Zealand who have 0% Stamp Duty and are now likely to see an increase in interest from offshore investors.

Where international investors look to purchase in the UK, they will be driven invest in lower cost property where the impact of SDLT will be lower. This will further increase direct competition between investors and first home buyers as they compete for the same stock. This is a battle in which there is no doubt liquid offshore investors will come out better.

There is little doubt that this will have a further dampening effect on the supply of new housing particularly in inner London which is reliant on international investors to help fund new development. This is good news for existing investors who will no doubt see the value of their investments underpinned by further slowing supply.

And finally, for the BTR market this new stamp duty is likely to be welcome news as developers are far more likely to consider a BTR exit rather than offshore markets already suffering from the impact of coronavirus. For the exhibition market this may well be the straw which breaks the proverbial camel’s back!

Planning Reform

The Chancellor has announced major overhaul of the planning system to be announced tomorrow. Given today’s announcements I anticipate this will provide significant additional measures aimed at helping Build to Rent Developers get a foothold in the UK’s significant rental market.