Call for UK to drop tax on new prime property developments

Image The UK Chancellor George Osborne should pause housing tax at the top end of the market or risk distorting the wider market, it is claimed in anew analysis report.

Up to a 100% rise in stamp duty on high luxury homes has seen buyer interest drop at a time when there has been a 40% rise in prime properties planned in London, according to the report from design and consultancy firm Arcadis.

It points out that the unintended consequences of successive stamp duty rises means projects in development for a number of years have been disproportionately affected and the delivery of affordable homes could be threatened as a result.

Despite initially encouraging investment in prime residential property as a means of stimulating wider economic growth, the government has since changed policies mid-cycle, the report suggests.

It says that this is regardless of the fact that many developers have already committed to major schemes. Since the end of 2014, the stamp duty alone on a £6 million home has almost doubled, rising from £420,000 to £810,000 when bought as a second property. The timing of these reforms has come just when certain parts of the market had already begun to slow.

In order to ensure sales, some developers who had committed to schemes before 2014’s reforms have been forced to discount prices or resort to ‘stamp duty paid’ deals. These sales discounts have hit margins by as much as 4% on prime homes and up to 7% on super prime properties.

Meanwhile, others have opted merely to delay construction, meaning that a significant number of affordable homes, planned as part of the original development, are not being built as quickly.

Furthermore, with fewer would-be purchasers willing to pay such high rates of tax, many investors are eyeing homes under the £1.5 million price threshold. This additional wave of interest risks distorting the mid-market and inadvertently pricing out those people who would typically be looking to purchase these as family homes, the research adds. 

According to Mark Cleverly, Arcadis head of commercial development, to accelerate the delivery of affordable housing currently in the pipeline and ensure the construction sector remains sustainable, the Chancellor must impose a temporary reduction in stamp duty on new build properties. In tandem with this, he must better focus the debate onto ensuring acceptable levels of affordable housing are delivered as part of new developments.

Cleverly suggests that this approach would get the market moving again, meaning both a steady flow of affordable homes coming onto the capital’s market and making schemes viable again for developers, safeguarding jobs and ensuring development can proceed as planned.

‘The Chancellor has to act on prime property tax. Despite initially encouraging investment in prime housing, the government since changed its mind and attempted to stem demand through ongoing tax increases and new fiscal regulations. This has prompted a drop in buyer interest at the very top of the market, creating a big problem for developers who had already committed to schemes and meaning affordable housing allocations are not delivered,’ he explained.

‘Whatever the Chancellor’s intentions when it comes to taxing the top, the unintended net result is likely to be less stamp duty receipts to the Treasury and potentially exacerbating the housing crisis. In short, stamp duty is becoming a tax on development, not on wealthy buyers,’ he added.

‘A more sensible approach would be to impose temporary stamp duty relief on new build homes planned before 2014’s property tax overhaul. This would both ensure the construction sector remains viable and accelerate the flow of housing of all tenures that London so badly needs,’ he concluded.

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