2014 Budget: Effect on Prime Residential Property market
Date of Article
Mar 21 2014

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London, 21 March, 2014, This week George Osborne announced that more residential property purchased through a corporate envelope will be caught in the net of increased taxes in order to deter the avoidance of stamp duty and to prevent homes being left vacant.

Stamp Duty Land Tax (SDLT)

The chancellor has extended the 15% SDLT threshold on properties purchased in a corporate envelope from £2m to property worth in excess of £500,000, to be effective immediately.

Gregory Besterman, head of residential at Carter Jonas said: “This expansion of the 15% SDLT taxation band, although a burden, will not cause a material increase in the volume of sales within the UK housing market. Within the prime London markets in particular, the principal reason for purchasing houses via a corporate structure is to ensure anonymity rather than a tax saving initiative”.

Annual Tax on Enveloped Dwelling (ATED)

For those that own residential property in a corporate envelope, the threshold at which the ATED (is triggered for unoccupied residential properties was similarly reduced from £2m to £500,000.

The change in threshold will be staggered with the £1m - £2m band coming into the effect from April 2015, where properties will be taxed at £7,000 per year and those valued between £500,000 - £1m will incur £3,500 per year from April 2016. These taxes will be subject to annual CPI linked increases on an annual basis.

This change in threshold will have significant implications throughout the UK, and particularly in London. The table below details 2013 average London flat values and illustrates all markets, with the exception of Knightsbridge, St James and Mayfair which are already eligible for the tax as over the £2m  threshold, will now be effected.

A means of mitigating this tax is by letting a property owned in a corporate envelope to a third party. When the ATED tax was introduced in the 2013 Budget, it targeted properties with a value of £2m or more and had a limited impact on the prime market, with no marked increase in the number of properties coming to the lettings market.
 
Lisa Simon, head of lettings at Carter Jonas said: “With the threshold now lowered to £500,000 from April 2016, its impact on the more mainstream markets will be considerably greater as many owners will regard charges of £3,500-£7,000 per annum per property as a material consideration and consequently take action to minimise their expenditure.  Therefore, we anticipate that this will increase the availability of rental stock in London within the mainstream markets, leading to the stabilisation of rental levels as supply and demand reach equilibrium”.