In his Budget speech yesterday (March 21st) chancellor George Osborne announced changes to the stamp duty land tax (SDLT) regime. The proposals include a new seven per cent level of SDLT for residential properties worth more than GBP 2 million, as well as an increase in the amount of SDLT charged on residential real estate purchases costing over this amount made by corporate envelopes. This now stands at 15 per cent. Both changes took effect from midnight last night.
The chancellor also announced plans to introduce capital gains tax (CGT) on homes owned by overseas envelopes, in order to ensure such organisations cannot avoid their tax responsibilities. Following the speech, the British Property Federation (BPF) urged the government to approach the new rules with caution.
Chief executive of the BPF Liz Peace commented the alterations to CGT along with the SDLT proposals need to be closely monitored "because it could operate to reduce the financial attractiveness of large-scale investment in residential property. Many funds or corporate investors will use offshore structures to hold their assets, and given the reliance on capital growth to generate returns acceptable to investors, losing a big bite to the taxman could cause real problems."
She added the government needs to bear this in mind during the consultation process on the measures, in order to ensure the level of investment in residential real estate is not adversely affected. However, Ms Peace was positive about the chancellor's decision to leave the SDLT on commercial property unchanged.
Mr Osborne also unveiled the government's intention to consult about real estate investment trusts (REITs), specifically looking at how they can be used to support the social housing sector and whether the treatment of income realised by a REIT when it invests in another REIT should be altered. Peter Cosmetatos, director of finance at the BPF, welcomed the new consultation, pointing out that changing the regulations surrounding REITs in this regard would "help stimulate investment and improve liquidity in the property sector". He also praised the steps being taken to look at how REITs can aid the country's social housing industry, highlighting that there needs to be considerably more investment in this type of real estate.
- Friday 23 March 2012