The Chancellor’s decision to launch a stamp duty raid on £2 million homes could trigger a slowdown in the areas of the property market which have been vital to supporting prices.
Chancellor George Osborne announced a stamp duty rate of 7 per cent on homes costing £2 million or more, which will mostly affect buyers in London, an area which has been key in supporting the market by recording consistent price growth due to strong overseas buyer interest.
He also announced that he was closing a loophole that allowed people to buy homes using an offshore company to avoid the charge instead charging 15 per cent on all homes bought through corporate envelopes.
Estate agents said the Chancellor risks “killing the goose that lays the golden egg” at a time when much of the housing market remains flat elsewhere.
Peter Rollings, chief executive of estate agent Marsh and Parsons, said: “Not only will this policy disproportionately target London, where house prices are in a league of their own, it risks killing the goose that lays the golden egg.
“With the property market still far from healthy, we need to see the Government supporting activity at all levels, rather than adding yet another tax burden.”
The National Association of Estate Agents (NAEA) said the Government had missed an opportunity to completely overhaul the “outdated” stamp duty system, a tax which is seen as causing distortions in the market.
NAEA president Wendy Evans-Scott said: “To reinvigorate this struggling market will require specific stimulus across the entire housing spectrum to help people buy and sell homes, not further penalties on those able to do so.”
Harvey Williams, spokesman for RICS West Midlands, said: “In the top 10 roads in the West Midlands none have a value of more than £2 million.
“It is mainly in the South East of England, there are isolated cases in the West Midlands.
“The property market in London and the South East does not compare.”
Mr Williams added: “We hoped there was more help for first time buyers. The stamp duty holiday has not been extended.
“First time buyers are the lifeblood of the house buying market.”
Chris Romans from PwC said the rise was no major surprise and shouldn’t have a significant impact locally.
He said: “We were well warned about the intention to raise additional taxes on high value properties and planning to avoid stamp duty. The increase of SDLT to 7 per cent on property valued at more than £2 million is unlikely to affect many property purchases in the Midlands.”
Jon Neale, director of residential research at Jones Lang LaSalle, said: “Stamp duty, a transaction tax, is recognised by most economists as the worst kind of tax.
The Chancellor praised Adam Smith’s principles of taxation at the start of his speech, but Smith would surely have disapproved of these increases. It is a pity that the Chancellor has chosen to leave the system intact, and increase it at the top end, rather than look at broader reforms that could make the market work more effectively – such as removing the slab structure.”
However, Tom Dennes, head of CPBigwood’s Country Homes division, felt the Midlands may actually benefit from the move.
“The rise in Stamp Duty Land Tax to seven per cent on homes changing hands at over £2 million could perversely prove a bonus for the Midlands,” he said. “It will really hurt the South East and to that extent discriminates against those who work there.
“They now face the choice of paying the extra or moving to where houses are less expensive, and commuting. And, eventually tied in with HS2 high speed rail, that could see more executives choosing the Midlands to live.”
Richard Rose, head of tax at BDO in the Midlands, said: “No one will be surprised by the stamp duty land tax proposals, although some of the detailed measures had not been anticipated. We consider the £2 million threshold for the new seven per cent rate on residential properties has been driven by political compromises - invariably undesirable in the long-term – rather than economic imperatives.
“A more sensible threshold would have been £5 million, which would have focussed the increased SDLT rate on properties owned by oligarchs, top investment bankers, and the very wealthy. The Chancellor has become increasingly exasperated by the use of abusive schemes to avoid SDLT biting on a property purchase.
“A punitive rate of 15 per cent has been introduced for the transfer of residential property into a limited company, which will deter new transfers into limited companies.
“In addition, a consultation is to be opened on an annual charge upon residential property already held within a limited company.
“I am not surprised that the Chancellor has attacked these arrangements with such ferocity, as “Middle-England” has taken umbrage that modest properties attract SDLT but very high value properties have often escaped.”