On December 3rd the UK’s Chancellor of the Exchequer, George Osborne, announced sweeping changes to property stamp duty. The single ‘slab’ rate is being abolished in favour of an ‘income tax’ approach in which different rates will apply only to the portion of the property value that falls within each specific band. The new rate bands are detailed below and are effective immediately in England and Wales.
|Above £125,000 below 250,000||2%|
|Above £250,000 Below £925,000||5%|
|Above £925,000 Below £1.5m||10%|
To put the above into context; A purchase of £1.5m will incur SDLT of £93,750, up from £75,000 a rise of 25%; A purchase of £2m will incur SDLT of £153,750, up from £100,000 a rise of 53.75%; A purchase of £5m will incur SDLT of £513,750, up from £350,000 a rise of 46.8%; A purchase of £10m will incur SDLT of £1,113,750 up from £700,000 a rise of 59.1%; A purchase of £20m will incur SDLT of £2,313,750 up from £1,400,000 a rise of 65.3%.
These changes will take effect on and after 4 December 2014. Transitional rules will allow buyers who have already exchanged on a home but not completed before 4 December 2014 to choose whether to pay SDLT under the existing or new rules. From what we have seen so far, our understanding is that the 15% SDLT rate for purchases of residential property by ‘non-natural persons’ will remain unchanged.
The Chancellor also announced changes to ATED, (Annual Tax on Enveloped Dwellings). This is to be substantially increased. From 1 April 2015, the charge on residential properties owned through a company and worth more than £2 million but less than £5 million will be £23,350, up from £15,400; for properties worth more than £5 million but less than £10 million the charge will be £54,450, up from £35,900; for properties worth more than £10 million but less than £20 million the charge will be £109,050, up from £71,850 and for properties worth more than £20 million the charge will be £218,200 up from £143,750.
Camilla Dell, Black Brick Managing Partner, says: “There is no question that the old stamp duty bands were in need of reform and overhaul. For 98% of the UK population these changes are therefore good news. But there is equally no doubt that these measures will hit property values in London and the South East and slow the market. Deals that have been agreed but have yet to complete will now need to be renegotiated to reflect the changes in SDLT. It is inevitable that a number of these will now fall though. Given the time of year many buyers may now wait until the New Year for the market to settle.
At the very top end of the prime market above £10m the impact is likely to be particularly acute. For every £1m above the old £2m top SDLT rate threshold buyers will now be paying an additional £50,000 in stamp duty compared to before. For the buyer of a £20m London home, this equates to nearly £1m extra in duties than was the case on December 2nd. While we accept that stamp duty is a one-off purchase tax that the majority of high-end property buyers can comfortably afford to pay, these latest changes are likely to have a pronounced impact on market conditions in the coming months.
Inevitably there will also be some more subtle changes to the structure of market pricing around the previous SDLT threshold of £2m. We expect to see properties coming to market in between £2m and £2.2m where there has been very little action since the previous increase in SDLT from 5% to 7%.
On the plus side, the changes are welcome news for buyers at the lower price bands in London. The trend of investors focusing on lower priced property is almost certain to continue and the sub £1m market will now be the focus of the majority of investor demand. We have several deals under offer in this price bracket and those clients will be saving money as a result of the changes. The sub-£1 million market could see significant price growth in the months ahead.
Overall we welcome the overhaul in SDLT but are concerned about the message these latest changes sends out to the international community that has invested so much capital into the UK economy in recent years. London attracts overseas investment because the UK is seen as pro-business with a relatively stable political backdrop. We have now had a number of seismic changes to property taxation over the last few years which threatens the attractiveness of London to overseas buyers. Each time the market has taken the changes in its stride. We will continue to monitor the situation carefully on behalf of our clients to see whether this is the case again.”
New Year, new London home? For canny buyers with a long-term perspective the current market backdrop to prime Central London property presents what we believe is an attractive buying opportunity. With the calendar year-end acting as psychological deadline, our experience is that vendors are more inclined to accept competitive offers at this time of the year. (It’s no coincidence that both Black-Brick partners bought their London homes in December). Competition is also a little weaker than normal – as a number of potential buyers from overseas prefer warmer climes to London in winter.
Looking forward, the majority of market forecasts for prime Central London in 2015 are for muted price growth at best, but this was before the Chancellors announcement today. We therefore expect that these forecasts will be revised down over the coming days. 2015 is likely to be a year of two very clearly defined halves split by the general election. Should the Conservative party win the May 2015 election, we expect an extremely active London property market and the opportunity to drive a hard bargain with vendors will be significantly reduced if not lost all together. We believe the period between now and the general election may prove an attractive entry point to PCL property over the long-term, especially if prices are driven down by the changes in stamp duty.
Meanwhile, given the extent to which Labour’s proposed policy Mansion Tax policy has already been watered down, we do not expect a Labour victory to have a dramatic impact on London house prices – though some short-term weakness in prices is likely. For owners in the £2m to £3m price band, the Labour Party has outlined the cost of the Mansion Tax at £3,000 a year. We do not believe this is significant enough to precipitate any widespread selling should the Mansion Tax become law.
Our experience with previous tax changes affecting prime Central London property is that it is the uncertainty that buyers don’t like more than the imposition of the charge itself. In the recent cases of the higher Stamp Duty above £2m and the imposition of Capital Gains Tax for foreign owners of UK property the market paused while waiting for the precise details before regathering momentum.
House Price Forecasts for PCL (Prime Central London) and the UK in 2015 and to end-2019
|PCL 2015||PCL 5 Yr||UK 2015||UK 5 yr|
|Jones Lang LaSalle||1.5||19.9||4.0||22.8|
|Cluttons||5.2||17.9 (4yr)||5.7||14.3 (4yr)|
|Strutt & Parker||2.0||15.7 (3yr)||5.0||21.3 (3yr)|
¹ England & Wales ² Assuming Conservative Victory
So which areas of London are likely to be ‘hot’ in 2015? For owner-occupiers we believe Marylebone offers the best of all worlds. Characterised by high quality independent retailers and restaurants including the Chiltern Firehouse so loved by the A-List, Marylebone has one of the best high streets in London. Yet the many attractions of Oxford Street are just a short walk away, as is the relative peace and quiet of Regents Park. The elegant period housing stock has recently been bolstered by new developments such as The Mansion, W1, The Chilterns and Chiltern Place. We believe Marylebone will continue to be one of the most sought after locations in London – and not just for those who cannot afford to be in Mayfair.
For investors we are tipping Maida Vale as one of the best areas in London to focus on in 2015. Overlooked by buyers in favour of neighbouring St John’s Wood, Maida Value looks extremely good value compared to its more expensive neighbours. Prices are still well below £1500 per sq. foot: rare indeed for an area with excellent shops and transport links in central London. We are currently in the process of acquiring a 1040 sq. foot 3 bedroom, 3 bathroom apartment for £1.25 million on behalf of a client, representing £1200 per sq foot.
For buyers focused on new builds or buying off plan, there are due to be well over a dozen new developments in the pipeline across Prime Central London over the course of 2015 and beyond, giving buyers the luxury of being able to pick and choose. As ever, it will be hugely important for buyers to carefully analyse the pros and cons of each, along with pricing, location and volume of units being developed in order to determine which ones will be best suited for investment. At Black Brick, we are busy going through this process now, ensuring our clients are well informed and therefore able to “cherry pick” the best off plan units in 2015 well ahead of the competition.
Our own statistics tell us that despite 2015’s general election looming ever closer, international demand for PCL property remains broad and strong. We have completed on a dozen separate transactions for investment clients in recent weeks – all with budgets below £2m. In the past month we have also signed new owner-occupier clients from Brazil and Egypt and an investor from Qatar. Budgets for these new clients range from £2m to £4m. Despite the changes to stamp duty announced on 3rd December, we do not expect demand to be reduced going forward, however buyers may alter their budgets to take into account the new tax environment.
Other developments of note include a significant rise in Russian interest across both the rental and sale markets in recent weeks. We expect political concerns to continue to be a driver of overseas demand for prime Central London property in 2015 and beyond.
The return of the Russians comes despite the collapse in the rouble against the pound. And while the sharp drop in the price of oil clearly has its own implications for net wealth in the Middle East, West Africa and Russia, the strength of the dollar does at least offer some compensation for potential buyers of prime central London property with US dollar assets. Sterling’s 9% drop against the so-called ‘greenback’ and a fall of similar magnitude against the Chinese yuan since mid-year is giving buyers in these increasingly significant asset pools a welcome currency discount. We expect Chinese buyers in particular to dominate the high end of PCL property in 2015.
Industry news also points to London property’s continuing long-term attractions to both individual and institutional investors. US investment house Cain Hoy recently announced a £450m tie-up with London housebuilder Galliard Homes to build homes in London targeting the £250k to £500k price bracket. Telford Homes, another London-focused housebuilder, also announced plans to build some £1.1bn in new housing in the capital. Telford’s chief executive says London “continues to suffer from a shortage of homes compared to current demand let alone future population growth”.
We also note with interest that a Qatari investment fund has recently acquired a 50% stake in the iconic Savoy Hotel in London, while Brazilian billionaire Joseph Safra recently paid £700m for the iconic Norman Foster-designed ‘gherkin’ office building.
December’s Property Acquisition of the Month is in Battersea, an area of London receiving a great deal of attention from international investors due in part to the high profile regeneration of Battersea Power Station. Our Kenyan investor client had a budget of around £1 million. We sourced him a stunning penthouse apartment, benefiting from stunning 360 degree views of the London skyline. Measuring just over 1,000 sq. foot, we negotiated an impressive £85,000 off the £1.25 million asking price, resulting in a very competitive rate of £1,151 per sq. foot, compared to neighboring Battersea Power Station, where off plan sales have been achieving well in excess of £1,800 per sq. foot. We will also be providing on-going property management services to our client who intends on renting the property out. To view the case study please click here.
This month we also managed the sale of a client’s property in Rossetti Gardens Mansions in Chelsea. Our international client had owned the property for many years and used it as his base in London. He had subsequently acquired a larger apartment nearby and so had decided to sell and wanted to use Black Brick’s Managed Sale service. We arranged for three market appraisals and selected two estate agents to market the property on a ‘winner takes all’ basis to encourage competitiveness between them. We oversaw the marketing strategy and ensured that there were consistently high numbers of potential buyers viewing the property. The apartment was sold to a cash buyer who completed 5 days after contracts were exchanged. We also had another party interested at the same sales price. Our knowledge of the selling agents in this location ensured that we gave our client the best opportunity of selling at the highest sales price. To view the case study please click here.
We are delighted to announce that Black Brick has once again been short-listed for Best Property Adviser in the prestigious annual Spear’s Wealth Management Awards. Black Brick is also pleased to be included in The Spear’s 500, widely viewed as the essential and most authoritative guide to the best professionals in key areas for High Net Worth individuals.
Finally may we take this opportunity to wish all our clients Seasons Greetings and best wishes for a healthy, happy and prosperous new year.