From 1 April, all non-UK buyers will be subject to an additional 2% stamp duty surcharge, increasing the cost for all overseas investors. So, what impact is this likely to have on demand?
Rob Oliver is sales director at Castle Trust Bank
The nil rate of Stamp Duty Land Tax (SDLT) on properties up to £500,000 may have been extended until the end of June, but there is still one stamp duty increase that the market will need to absorb next month.
From 1 April, all non-UK buyers will be subject to an additional 2% stamp duty surcharge, increasing the cost for all overseas investors. So, what impact is this likely to have on demand?
The first thing to note is that, while stamp duty grabs headlines, the tax adds a relatively small amount to the overall cost of a transaction, and any change is often counteracted by the pricing of properties on the market. We’ve seen this in the domestic buy-to-let (BTL) market; recent conversations with surveyors have highlighted reports of investors holding off on buying until after the stamp duty window, as they believe they could see more benefit by negotiating in a less frenetic environment than any stamp duty savings they might realise by buying during the window.
A 2% surcharge may provide an incentive for any ongoing transactions to complete ahead of the deadline, but it’s unlikely to be the difference in whether or not someone decides to buy in the UK. In addition, overseas buyers will still benefit from the extension of the nil rate of stamp duty, which is likely to soften the blow of the additional surcharge.
The key driver for demand will be how attractive, or not, an investment in UK property is perceived to be by overseas investors. And here, the signs are looking positive.
At the beginning of the year, Knight Frank published a report on international capital flows, within which it predicted which countries would receive the most real estate investment from overseas. The UK came second in the global list, just behind the US.
Knight Frank also listed the top sources of capital, and at number eight was Hong Kong. This is significant because, as a result of political unrest in Hong Kong, the UK government is offering a new visa to Hong Kong holders of British National Overseas passports that gives them a chance to become British citizen.
It’s no coincidence then that Hong Kongers became the fifth largest foreign investors in central London as of last August and, over the next five years, it’s anticipated that more than 300,000 Hong Kong residents could emigrate.
The UK property market isn’t just attractive to people moving out of Hong Kong. It has long been considered a solid investment for overseas buyers because of the continued under-supply of property and robust legal system.
In recent years, uncertainty over Brexit has put downward pressure on the pound, making property more affordable, but with an agreement now in place, sterling could be positioned to regain some of that lost value – providing an incentive for investors to buy sooner rather than later.
And of course, in a global pandemic, the UK is leading the way with its vaccination programme, which is driving positivity about the prospects for economic recovery. Indeed, with his Budget speech, the chancellor said that the OBR had predicted “swifter and more sustained recovery than earlier thought” and the UK economy is expected to return to pre-COVID levels by mid 2022.
These are the strong fundamentals that overseas investors look for when they make a decision to buy property and, while tax is a consideration it is rarely the motivation or disincentive for someone to proceed with a transaction – and this is why overseas buyers will look beyond the stamp duty surcharge.
Read more about the future of foreign investment in the UK property market in February's issue of Bridging Introducer.
