In our guest blog, Joanna Symes of property search company Alabaster Property writes about the implications of the Budget for the top-end of the property market
George Osborne may not be the developer’s best friend. In the Budget, the Chancellor launched an attack on high-value residential properties and perceived tax avoidance. The changes announced in the Budget may have been popular with the electorate outside of ‘Planet London’, as it is often perceived as tax-dodging central for super rich non-doms and industry tycoons. Yet the Treasury may have shot and blinded itself in the process, potentially creating a funding hole because the property development industry in Central London generates significant tax revenues for the coffers.
For residential property costing more than £2m, a new 7 per cent rate of Stamp Duty Land Tax (SDLT) was announced. This shock announcement, as everyone in the industry waited for an announcement on mansion tax, resulted in solicitors, property advisers, buyers and vendors working until midnight on Budget day (21 March) to complete their transactions in record time.
There is an exemption from the new 15 per cent SDLT charge for ‘property developers’, provided certain conditions are met. One of these is that the purchasing entity has been carrying on a property development business for at least two years before the effective date of the transaction, which could cause problems for a number of developers. Profits on development projects are taxable and VAT is now payable on alterations to listed buildings. Development projects generate SDLT revenues by buying and reselling redeveloped properties which means that a proposed development on a fine white-stuccoed Grade-II listed Victorian square is a rather less attractive proposition than before, in the short-term at least.
This will raise barriers against new property businesses, who will find that they are unable to compete owing to their margins being slashed considerably with their acquisition costs being 8 per cent higher than their established competitors. The 15 per cent charge is problematic for those developers with more than two years in the business as well, as their financing is often from equity investors due to the lack of bank finance available for development projects.
Time will tell whether the legislation can be drafted in such a way to avoid catching innocent transactions. However, if this year’s fascinating Sunday Times Rich List is anything to go by, acquiring property in Prime Central London is a sound long-term investment for the shrewd and confident investor. Whatever the Budget did or didn’t do, there is only a finite amount of attractive London property to purchase. Meanwhile, London continues to be one of the most exciting cities in the world to live in. I have yet to meet someone who has said: ‘I wish I never bought that’. They are more likely to whisper: ‘I wish I had never sold that!’
The views expressed in this article are those of the author and not necessarily those of Anderson Harris