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Investment & New Homes
London Property Market 03 December 2014

Autumn Statement Reaction

Following on from today's Autumn Statement, Robert Bartlett, CEO of Chestertons gives his reaction:

With the General Election less than six months away, the Chancellor was always going to deliver a voter friendly message. However, he has clearly balanced this with provision for dealing with a slowing economy facing the prospect of deflation, a rising budget deficit and disappointing tax revenue.

The additional spend on the National Health, leaked before the event, is welcome news but means that there is less to give away in other areas. With regard to the housing market, we would like to have seen further active encouragement for house building and a revision of the taxation of residential property transfer and occupation. However, given the current constraints on the public purse it is no surprise that the Chancellor has left this well alone and we have been left with a fairly neutral outcome for the housing sector.

Stamp Duty Land Tax (SDLT)

Perhaps as a partial riposte to Labour's Mansion Tax, the Chancellor has revised the SDLT system by moving away from the old "slab" system to a "progressive" one and introducing new thresholds as follows:

  • Up to £125,000 = 0%
  • Up to £250,000 = 2%
  • Up to £925,000 = 5%
  • Up to £1.5m =10%
  • Over £1.5m = 12%

Analysis of the new rates reveals that anyone purchasing a property with a value above £937,500 will be worse off, in some cases by a considerable amount. This will particularly affect London where a £1.5m plus property is no longer considered expensive and will attract an increase in SDLT of 25% or £18,750. For purchasers below this value, and especially first time buyers, the change will come as an early Christmas present. For example, a house purchase for £510,000 will see a 24% reduction in SDLT compared to the old regime while a £210,000 purchase will result in 19% reduction.

Inheritance tax (IHT)

The promise to raise the threshold for IHT to £1 million was as mooted by David Cameron appears to have been ignored. This is disappointing as the nil rate band for IHT has remained at £325,000 since 2009, during which time, the rise in property prices means increasing numbers have breached the threshold and been caught by the tax. On a more positive note, following consultation launched after Budget 2014, the government will not after all introduce a single settlement nil-rate band. The government will instead introduce new rules to target avoidance through the use of multiple trusts. It will also simplify the calculation of trust rules.

Council tax (Mansion Tax)

Although the overhaul of the council tax system is long overdue, it is again no surprise that the Government does not wish to go to the time and expense of such an exercise in the current climate of public expenditure cuts – even though the exercise could result in a higher tax take.

Housing supply

We are encouraged by the Government's further support for house building, including the extension of the affordable homes' programme for a further two years and further reform of the planning system to facilitate and speed up the decision making process.We additionally look forward to hearing more about Danny Alexander's proposal to achieve a house building target of 300,000 properties per annum, which although welcome seems ambitious given that an average of 175,000 has been completed over the past 10 years – a figure which drops to 149,000 per annum since the global recession. The concept of direct government commissioning of housing on public land at either national or local level to help meet this target is an interesting one but there will need to be sufficient incentives to persuade the private sector to build the homes when and where the Government wants them.

Capital gains tax on the disposal of UK residential property by non-resident owners

Whilst not referred to in the Autumn Statement, draft legislation will be included in the Finance Bill 2015 (to be published on 10 December 2014) which will provide further details about how this CGT charge will operate when it comes into force in April 2015. Importantly for long term non-resident owners, the tax will not be applied retrospectively and that the base valuation date for assessing tax liability will be 6th April, thus removing fears of a hefty tax liability from day one.

Among the exemptions and allowances we are pleased to note confirmation that the tax will not apply to pension funds and other diversely owned collective investment funds, although there remain definitional issues regarding the different types of collective investment schemes which will be exempt.

We are disappointed that no exemption has been granted to expatriate owners who have been working abroad and who intend to return to the UK to take up residence in their principal home – unless they have resided in the property for a minimum of 90 days within each tax year or are tax resident in the country in which the property is based. This category of owner is not seeking to make a capital gain per se and often will not possess a second home as they will typically rent while on an overseas posting and should therefore be treated as other resident owners with a single home upon sale

Annual Tax on Enveloped Dwellings(ATED)

The policy of punitive taxation of residential property held within corporate wrappers is now firmly established and owners have to decide whether to accept the additional cost in order to retain anonymity. The confirmation of the reduction in the starting threshold for ATED on residential properties held within corporate wrappers, as announced in Budget 2014, was expected. However, the surprise was the announcement of increasing the rates applicable to ATED liable properties by 50% above inflation for residential properties worth more than £2 million for the chargeable period 1 April 2015 to 31 March 2016.