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Stamp duty - Simon Barnes

Stamp duty changes

Simon Barnes asks what effect the increase in Stamp Duty will have on the upper end of the market.

Last week’s budget, rather predictably, saw a move by the government to hit the top end of the property market with an increase in tax. This came in the form of a rise in stamp duty for property over £1million, from 4% to 5% - starting next year. Whilst the increase is substantial, in reality the long-term effect at the top end of the market will be minimal.

To put it into perspective, a buyer of a £10million house will have to fork out an extra £100,000 – no doubt a large amount of money, however wealthy you are, but at this level of the market it is probably not enough to deter a buyer. In any case, many properties at the very top of the market (£10million upwards) are bought by off shore companies and SPV’s specifically set up for this purpose. We are likely to see lawyers and accountants constructing special schemes to bypass or minimise the tax.

Around the £5million mark, there will be a lot of negotiation taking place initially, with buyers using the stamp duty increase as a platform to negotiate hard on price. Of course the £1million mark will certainly be a hurdle – in the practical and psychological sense – with neither buyer nor seller standing to benefit. Solicitors, accountants, agents and vendors will have to become more creative in order to reduce the impact of SDT as much as possible. Vendors will be advised to package their ‘offering’ differently – for instance, properties will be priced at £995,000 plus an extra £10,000 for fixtures and fittings. We may see some overinflated prices too to discourage unreasonable offers for properties just over £1million.

There will naturally be a section of the market that will use the change as a reason 'not to do what they weren't going to do anyway', just as the forthcoming election is allowing both vendors and buyers to sit on the fence. However, as the increase in SDT will not take effect until 2011, we may well see a rush of activity in months to come around the £1million mark. Towards the end of the year, there will be immense pressure to rush through any exchanges before the tax increase kicks in.

Long term, the increase will not stop business being done. In a few years time, it will be a long forgotten piece of legislation.

Simon Barnes

Simon Barnes, of Simon Barnes Property Consultants, offers a bespoke buying (and selling) service to a small number of private clients, advising on all aspects of property transactions. Simon operates primarily within the top end London market, but also works with clients who are buying and selling overseas. www.simonbarnes.com

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