The Conservative Party has unveiled plans for a 3% stamp duty surcharge for non-UK tax residents who are purchasing property, which would apply to companies as well as individuals – and also to expats wanting to move back home.
The Tories said as many as one in eight new London homes were bought by non-residents between 2014-16.
If the higher tax was implemented, a wealthy overseas buyer of a London home worth £1.5 million would pay £183,750 in stamp duty compared with £93,750 for a Londoner buying the property for their own use.
According to the Conservatives, homes that are snapped up in the UK are ‘often bought by wealthy individuals or companies, and kept as investments or rented out at inflated prices’.
It pointed to a 2017 study carried out by the University of York which revealed that 13% of new London homes were purchased by non-residents in the two years between 2014 and 2016.
“This adds significant amounts of demand to limited supply, inflating house prices and making it harder for people in Britain looking to get a foot on the property ladder,” a statement from the party said.
As things stand, non-UK citizens are able to buy homes as easily as those who live in the country, which has caused concerns that UK residents are being disadvantaged when it comes to their chances of getting on the property ladder.
The extra 3% surcharge – which would be on top of the 3% surcharge all buy-to-let and second home buyers must pay – will only apply to England and is a beefing up of the earlier plans for a 1% surcharge announced by Theresa May’s government in February this year.
Back then, the May government launched a consultation – running from February 11 2019 to May 6 2019 - seeking views on the design of a 1% stamp duty surcharge on non-UK residents purchasing residential property in England and Northern Ireland. It said the surcharge would apply to freehold and leasehold purchases of residential property and would be on top of all existing SDLT rates, including the rates applicable to the rental element of leasehold property.
At the 2018 Conservative Party conference in Birmingham, May originally announced the plans for a levy on overseas buyers – reaching potentially as high as 3% – but this was reduced to 1% by the time of the consultation after a backlash from the prime end of the sector, who said limiting overseas investment could have an impact on both employment and the health of the London property market.
Since the consultation ended in May, though, we’ve heard very little about these proposals. Until now.
The Tories said the measure is expected to raise up to £120 million each year, with this money used to help tackle rough sleeping. The party added the policy was ‘not about nationality but residency’ and would have an impact on around 70,000 house purchases a year.
If the measure comes into play, the UK would be following in the footsteps of a number of other countries and cities which have levied surcharges on overseas buyers purchasing homes. In the Canadian city of Vancouver, a 15% tax on overseas investors was introduced in September 2016 to cool property prices, and this was later upped to 20% in 2018.
“Evidence shows that by adding significant amounts of demand to limited housing supply, purchases by non-residents inflate house prices,” Rishi Sunak, the chief secretary to the Treasury, said.
In a refrain mirroring the one May has used before, he added: “Britain will always be open to people coming to live, work, and build a life in this great country.”
The move is seen as an attempt to cool London’s overheated property market – where the lion’s share of overseas investment is centred – and increase home ownership by reducing house prices. The Conservatives quoted from a King’s College London study, which estimated that a 1% increase in the share of residential transactions registered to overseas firms led to a rise of approximately 2.1% in house prices, while also lowering the overall homeownership rate.
It also came the morning after the release of Labour’s manifesto, which pledged to build 150,000 council and social homes a year by the end of the parliament, as well as introducing a second homes tax, open-ended private tenancies and the capping of rents at inflation, with cities given powers for further rent controls. A full breakdown of Labour’s housing policies can be seen here.
Vadim Toader, founder and chief executive of fintech startup Proportunity, said the government was punishing the wrong target.
“Foreign buyers aren't to blame for the UK's housing mess and slapping extra stamp duty on their transactions risks hitting the London market especially at a time when we should be opening up to overseas investment,” he argued.
Camilla Dell, managing partner at independent buying agency Black Brick, added: "The Conservative pledge to increase stamp duty paid by overseas buyers by 3 percentage points - which would increase the top rate paid on the most expensive properties to 18% - would be a negative for prime London property."
"We think such a surcharge – while it mirrors those imposed by other international cities such as Hong Kong, Singapore and Vancouver – would inevitably hit overseas demand for some types of prime property in the capital, although we would expect the market to absorb the increase as it has with earlier tax rises."
She said it is unlikely to deter buyers at the top end of the market, who continue to benefit from weak sterling and substantial price falls. However, it could well put off middle-class overseas investors in 'somewhat cheaper properties', many of whom have invested in new-build apartments on a buy-to-let basis.
"This could have the unintended effect of slowing development in the capital," Dell said.
She concluded: "There has been some speculation that the move could be the first part of a wider overhaul of stamp duty. This would certainly be welcome, but we think it is unlikely in the current political and fiscal environment.”