Richest U.K. Homebuyers See Tax Hike While Rest Get BreakPatrick Gower and Neil Callanan
The U.K.’s wealthiest homebuyers face a jump in transaction tax while almost everyone else will pay less after Chancellor of the Exchequer George Osborne revamped a system that he says punishes low- and middle-income families.
The average U.K. homebuyer will save 4,500 pounds ($7,000) on a new home and 98 percent will pay less under a revised system of levies known as stamp duty, the chancellor said. Buyers of homes that cost more than 937,000 pounds will see their tax bill go up, “rising to more substantial sums for the most expensive homes,” he said. The changes go into effect at midnight.
The new system will replace a stamp duty organized in rigid brackets in favor of gradual increases similar to the way income tax is levied. Buyers will pay no tax on the first 125,000 pounds of a home’s price and 2 percent on the portion up to 250,000 pounds. The tax rises incrementally to as much as 12 percent for the portion paid above 1.5 million pounds.
“Today I am announcing a complete reform of a tax that has been described as one of our worst-designed and most damaging of all taxes,” he said. “In recent years, the burden of stamp duty has increased on low- and middle-income families trying to buy a new home, as prices have risen.”
Foxtons Group Plc, a property broker focused on London, fell as much as 6.3 percent after Osborne’s announcement. The shares were down 5.1 percent at 150.3 pence at 3:47 p.m.
The higher taxes will affect London particularly because it has the most homes costing more than 1.5 million pounds. The average house is valued at more than 6 million pounds in the neighborhood of Mayfair and 4.6 million pounds in Knightsbridge, according to data compiled by Foxtons. Buyers of a 5 million-pound home will pay almost 164,000 pounds more under the revised tax system.
“There is clearly going to be stagnation in the higher end of the market, especially in London,” Jeremy Steinson, head of trading at Killik & Co., said by e-mail. For a home that sells for 15 million pounds, stamp duty will rise by 63 percent to 1.7 million pounds, Knight Frank LLP spokesman John Williams said on Twitter.
The U.K.’s political parties have placed property tax at the center of their campaigns before May’s general election. Purchases of first homes have fallen since August after price increases made homes less affordable and banks tightened lending criteria to avert a repeat of Britain’s 2008 housing crash.
In March 2012, Osborne raised stamp duty to 7 percent from 5 percent for properties priced at more than 2 million pounds. In March this year he extended a 15 percent stamp duty on empty U.K. homes worth more than 500,000 pounds and owned by companies, reducing the threshold from 2 million pounds.
Stamp duty raised 6.45 billion pounds during the 12 months through March, up 32 percent from a year earlier, according to the Treasury.
The opposition Labour Party plans to raise 1.2 billion pounds from an annual tax on homes valued at more than 2 million pounds if it wins the election.
The number of purchases by first-time buyers has fallen 12.3 percent in the three months through October, LSL Property Services Plc said last week. Prices in the U.K.’s 20 largest cities climbed 9.2 percent in the 12 months through October, according to Hometrack. That compares with 1.3 percent growth in average earnings.
Osborne also said today that the annual charge on homes owned by companies will rise by 50 percent above inflation on properties worth more than 2 million pounds.