U.K. Apartment-Building Buyers to Pay Higher Stamp-Duty Tax

  • Charge to increase for most expensive commercial properties
  • Government to pass laws to stop tax avoidance by developers

Insurers and pension funds, which have been buying homes in the U.K. as they seek to boost returns amid low interest rates, will have to pay a higher rate of stamp-duty sales tax.

A three-percentage-point levy on landlords and second-home owners will also apply to corporate investors, Chancellor of the Exchequer George Osborne said on Wednesday. A cut in capital-gains tax to 20 percent from 28 percent won’t apply to profits made by people who own residential property, Osborne said in his budget speech.

“The government’s decision to not include an exemption for investors who are purchasing large portfolios of properties for rent is extremely disappointing, and deals a huge blow to the build-to-rent sector,” Melanie Leech, chief executive officer of the British Property Federation, said by e-mail. “This is going to be a significant deterrent to the institutional investment."

There are 40,000 build-to-rent units in planning, construction or completed across the U.K., according to the BPF. The higher stamp-duty rates on additional properties are expected to raise an extra 2 billion pounds ($2.8 billion) in the next three years, according to forecasts by the government.

Osborne also raised stamp duty for buyers of commercial properties to 5 percent of the portion above 250,000 pounds. Previously purchasers paid a maximum of 4 percent on the acquisition.

Task Force

The U.K. government will set up a task force and pass a law “to ensure offshore structures cannot be used to avoid tax on profits from developing property there,” Osborne said.

The Chancellor said cuts to tax relief on debt interest will be implemented next year. The measure “will be of real concern to companies operating in heavily geared sectors such as infrastructure and real estate,” Jonathan Hornby, managing director at Alvarez & Marsal Taxand, said by e-mail.

The Bloomberg U.K. Homebuilder Index rose as much as 3 percent, the most since Feb. 10, after Osborne introduced a savings product that can be used toward a down payment for a property costing 450,000 pounds or less. Adults under 40 who save as much as 4,000 pounds a year through the so-called Lifetime ISA will receive a 25 percent bonus from the government.

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