Stamp Duty Allowance
Announced in March 2010 by the Labour Party, the increase in the stamp duty on residential property purchases over £1,000,000 increased on April 6th from 4% to 5%. This increase is intended partially to fund the tax gap created by doubling the stamp duty allowance for first time buyers to £250,000.
One effect on the housing market in London has been that although property has come to the market between January and March, there has been no shortage of prospective buyers, particularly at the top end of the prime central London market, encouraged by bonus figures being released at the start of the year. Selling and buying has been frantic; the prospect of paying an extra 1% on top of a purchase has put pressure on people to move before April. There have been bids and good offers on those properties which have been reasonably priced at the beginning of this year. We have seen properties selling at and above asking price before they have even fully come onto the market – not quite at 2007 levels, but certainly reminiscent of the pre-crash boom.
A consequence of this is that the dearth of property is now even worse than it was at the beginning of the year, and there remain many frustrated high-end buyers, not best pleased by the knowledge that the purchase of a home will cost them upwards of £10,000 in additional tax.
It is likely that the 5% stamp duty will be with us for the foreseeable future, as the government needs the revenue and luxury, top end property is an obvious source for it, to a government conscious of its electoral viability. The majority of buyers at the top end of the market who are most likely to be affected by the increase in stamp duty will be the plethora of overseas buyers and will not be a part of the electorate.
The shortage of property exacerbates the demand in prime central London and key towns in the South-East, where property remains a favourite with overseas investors. The unrest in the Middle East and the recent declaration by Portugal will encourage investors further into the prime central London market which continues to be perceived by most as a comparatively safe place to invest in property.