The Audacity of the British Treasury

Yemi Edun, CEO Daniel Ford

Yesterday, the United Kingdom’s Chancellor, Rishi Sunak, whilst delivering the government's budget plans announced a stamp duty land tax surcharge of 2 percent to be brought on non-UK residents. These plans which are to be implemented by April 2021, would increase the transaction cost for non-U.K Buyers of property in England and Northern Ireland. 

The United Kingdom is currently negotiating a settlement with the E.U to settle on its long term trading relationship, as such, it’s made clear to the world that it’s open for business, and the current Boris Johnson led Government is taking steps to boost spending and lower taxes to prepare for the new future they envision. The U.K should thus be seeking to be lowering drawbridges, but it has the audacity to raise this levy. Why?

Before we answer this, let’s take a look at this government decision from the lens of its effect on the average Nigerian Buyer. Investing in international properties for those who are in the bracket to afford it, is a mandatory purchase akin to your child’s school fees. If you were to get a call from your Childs school saying that school fees had been increased by 5%, you’d grumble, but would still pay, as the alternative is your child stuck at home or switch to another school. In this same vein, it’s crucial for those above a certain net worth to protect their assets from local economic factors and one of the best options is to diversify internationally by geography and to invest in a stable asset class. 

A look at the current economic situation in Nigerian paints a picture. Inflation is running bullish at double digits, Treasury Bills yields have dropped from double digits to low single digits, the dollar exchange rate remains unstable and artificially propped up, and disagreements between Saudi Arabia and Russia with regards to production volumes still has the effect to usurp government budget plans significantly. All these reasons and more make the case for a reasoned approach for the maintenance of wealth and make a property purchase internationally and London specifically we’d hope mandatory. It also forms one of the pillars to the question of why the UK government has the audacity to impose such a levy.

London is a truly global market with global buyers and citizens. We can argue that the government knows the indispensable role the U.K plays in the International scene as the second home for many. This also extends to world-class service that the city provides in medical tourism and education. So it’s either a case of knowing that the average non-U.K buyer is wealthy and can absorb the impact of the 2% increase or the knowledge that a decrease in non-U.K buyers would play well with a home audience that blames overseas buyers for rising property prices.

That being said, let’s discuss the Stamp duty more. The government says that the tax “will help to control house price inflation and to support UK residents to get on to and move up the housing ladder”, the Treasury said. The tax revenues it generates, estimated in Budget documents at an average ￡105m a year, will be used for tackling rough sleeping. The tax would mean that a purchase in England and Northern Ireland of an ￡800,000 home could come with an extra stamp duty bill of ￡40,000, if this was their second home and they paid the additional 3% stamp duty levied on second homes. Currently, property buyers from outside of the UK pay the same rates as UK-based home buyers

Whilst this may seem an egregious increase, we feel London still stacks up favourably compared to its global peers. Take the USA for instance which has an annual property tax across most states averaging 2%, which is paid on an annual basis as against the one-off U.K option. Meaning that once the bill is settled, it can be forgotten about. This means if you fall on hard times in the future, which isn’t completely impossible, there isn’t a property tax hanging over your head that could lead to the forfeiture of your property due to non-payment. So while the levy is a blow, it is not fatal

So, I guess the real question is, are you ready to pay the price of securing your wealth?

If you dither, you’re still going to have to do it eventually, but probably at a higher cost. So our view of the cost is that it’s definitely not as convenient as previous arrangements but it’s still a discount on a necessity, which is a piece of London.

March 2020