Country houses for sale

Finance Bill detail brings clarity to the market

The promised annual charge on UK residential properties over £2m held in corporate structures, of 1% of their value, has been introduced as part of the Finance Bill today, to take effect on April 1 2013.

In addition to the annual levy, capital gains will become payable on capital gains accruing on or after April 6. But the fact that capital gains tax will apparently not be payable on gains made between purchase and April 5 of next year as many had feared, has proved welcome newsand will prevent the market being flooded with stock from long-term owners seeking to realise their gains ahead of this date, says Savills.

Lucian Cook, director of Savills residential research says: “We expect the additional taxes to take time to be absorbed by the prime residential markets, resulting in a period of static house prices in prime central London over the course of 2013, an assumption already reflected in our published forecasts which anticipate growth of 25.6% over the next five years.”
The market has reacted already to the post Budget uncertainty, says the research department: ‘Share transfers, which were relatively uncommon prior to the Budget, have all but been extinguished. Some buyers have continued to put property into a corporate structure, accepting the increased rate of stamp duty, the potential annual charges and possible future capital gains tax, because of a desire to retain their anonymity and to protect their wider global tax position. Our analysis of a sample of >150 sales over £2m+ since the Budget identified only two share transfer deals.’

Overall, the analysis suggests it is questionable whether, in terms of the amount of tax paid, the increase in the proportion of transactions paying stamp duty since the Budget make up for the overall reduction in transaction levels, Mr Cook’s team have concluded.

* Subscribe to Country Life and save 40%

Recommended videos for you

The pre-announcement the annual charge for £2m+ properties for “non-natural” owners and the extension of capital gains tax (CGT) to cover some disposals, had already led to a sharp slowdown in sales activity as potential purchasers waited for clarification on the rules before committing to a purchase, confirmed Knight Frank’s research department. In the third quarter, year-on-year £2m-£5m sales volumes were down by nearly a third, it found.

But with many prospective purchasers waiting to see the detail of the legislation can now rest more easy as there is a clearer idea of the structures which will be subject to the annual charge, CGT and the 15% rate of stamp duty land tax (SDLT), and as a result they anticipate there will be a modest rise in market activity as buyers who were holding off purchases feel able to commit.

Grainne Gilmore, Head of UK Residential Research at Knight Frank commented: ‘The fact that we at last have some clarity on the various new taxes is welcome. But it is the widening of reliefs and exemptions which is one of the most positive aspects.

‘But there is still some uncertainty, especially surrounding CGT, in that the government is considering extending this charge to resident non-natural persons. It will publish more on this in January.
‘There are some details still to emerge – but the initial reading of the legislation is that it should provide the certainty required by the market.’

* Follow Country Life property on Twitter