Stamp duty measures hit prime market

Activity in the £2m-plus property market has fallen by 40 per cent this year, writes Lucy Warwick-Ching.

Mishcon de Reya partners Jonathan Legg and Ned El-Imad participated in Hamptons' SDLT Roundtable on 11 September together with Graham Norwood (journalist, Chair), Paul Emery ( Director, Pricewaterhouse Cooper) Peter Cosmetatos (British Property Federation), Cliff Gardiner (Buying Agent), Marc Goldberg (Head of Sales, Hamptons International), Andrew Phillips (Central London Director, Hamptons International), Adam Challis (Head of Research, Hamptons International) and Lucy Warwick-Ching (FT Money).

Demand for London's multibillion pound residential market has fallen by 33 per cent since the introduction of hard hitting stamp duty measures in April's Budget, according to Hamptons.

At a property roundtable event this week, the estate agent revealed that registrations from wealthy buyers had been lower in each month since April than at any time in the previous five years, and are 43 per cent below normal levels.

The Budget introduced a Stamp Duty Land Tax (SDLT) at 15 per cent on purchases by company vehicles of residential property costing more than £2m, alongside a top rate of 7 per cent for such properties purchased by individuals.

These charges were introduced with immediate effect. Additional measures in 2013 will impose an annual charge on corporate buying vehicles and impose capital gains tax on disposals of properties held indirectly.

The roundtable, which included tax experts, real estate lawyers, buying agents and representatives from industry bodies, included responses from a survey of how wealthy property clients felt about the stamp duty measures.

The majority of respondents said the measures had either strongly or partly deterred them from buying property in London. Also, whereas 78 per cent of people said that - before the Budget - they would have bought property using a "corporate envelope", or "company structure", just 10 per cent said they would still buy through such a vehicle.

Andrew Phillips, central London director at Hamptons International, says: "While SDLT measures had a very real short term impact on the spring market - arresting the previously buoyant prime central London market - the long term impact is even more worrying. These measures are being seen as a witchhunt on the rich." He warns that by targeting certain residential buyers, many of whom he says prefer to hold UK property through a corporate structure to retain anonymity rather than avoid tax, "the government is cutting off its nose to spite its face".

He contends that activity in the £2m plus property market has fallen by more than 40 per cent in 2012, representing around 700 fewer transactions. Assuming a 7 per cent SDLT rate, that implies foregone revenue of between £150m and £175m.

Experts also say the lack of clarity over the CGT position on these properties and the new annual charge, means many buyers are waiting in the wings, and estate agents and accountants urge the government to clarify its position as soon as possible.

Participants in the roundtable, which included Mishcon de Reya, PwC, the British Property Federation, a highend buying agent, and Hamptons, variously described the package of measures as "conflicting", "confused" and "muddled".

Paul Emery, director at PwC, says: "The government felt under considerable political pressure to do something, but the 15 per cent levy has been applied too widely. We believe the measures, aimed at persuading people to transfer property out of corporate structures will not achieve what the government set out to do . . . The significant reduction in transactional activity that Hamptons has identified seems to support our predictions."

Developers, professional investors, property funds and private trusts find themselves caught by the rules, mostly inadvertently. "One example of where the ramifications of these proposals may not have been thought through relate to Real Estate Investment Trusts (Reits)," adds Emery, who points out that the government has been trying to encourage investment in Reits. "Subjecting a Reit to SDLT at a rate of 15 per cent on acquiring residential property and an ongoing charge seems counter to that commitment."

However, Peter Cosmetatos, director of policy at the British Property Federation, says there is hope for those caught by the charges. "The government is consulting on the annual charge and the capital gain tax proposal, and it seems to be listening to what we are saying. We hope that the CGT proposals are abandoned and business related properties are exempted from these measures."