“The drop in income tax from 50-45p, although much trumpeted and leaked beforehand, will be very welcome albeit next year.
It is a pity that it did not kick in sooner but by all accounts the rise from 40-50% generated such little money (£100m) that is was hardly worth bothering – the cost of raising the tax was greater than the revenue received.
We need to understand that taxes are not penalties against success or a socialistic attempt to create an equal society - Karl Marx came a cropper at that game – but they are meant to be what they are which are revenue raising devices.
If they don’t raise an acceptable amount of revenue they shouldn’t exist and they will work against the creation of jobs and enterprise.
The rise of stamp duty from 5-7% will create a momentary hiatus but since the higher end of the residential markets, particularly in London, is so robust it will be absorbed into the system and taken for granted.
I can see there is going to be an unseemly squabble when sellers want to put their properties on the market at just over £2m.
In all probability you will find more properties around £1.9m being sold with more and more money put into “goods and chattels” which by-passes the stamp duty trigger.
This is an age-old trick and I am sure that HMRC have got wise to it.
Since the council tax is still modest compared with property taxes in other parts of the world i.e. USA and France where often 1-1.5% can be chargeable this rise in stamp duty is still modest and a one off event.
This was a very predictable tax which is simply collected but the risks are that this hiatus could be longer than anticipated and let us not forget that the fewer transactions the less tax paid.
This sector of the property market has been generating very useful impetus for growth and is helping putting money into consumer’s hands to fuel retail spending - which is no bad thing. One doesn’t want to injure the ‘golden goose’.
As to corporate entities buying residential properties there is now a penal rate of stamp duty that will, on the face of it, prevent wealthy purchasers using corporate vehicles.
However I am sure when the boffins take a look at the detail of the Finance Act there will be ways around the system since the higher the stamp duty the more cost effective it is and the higher the rewards to engineer systems to circumvent it.
Before we get too ‘hissy’ about this matter let us remind ourselves where this corporate purchasing comes into being.
Some 99% of all property in the UK is owned personally since there is no capital gains tax on one personal private residence.
Therefore any corporate entity buying in the UK from a personal entity will be paying stamp duty in the normal way at the full rate.
It is only when the offshore company wants to sell the asset it holds to a purchaser that there is a choice whether to buy the shares of that offshore company whilst holding the property and thereby paying 0.5% stamp duty or buying the property itself as an asset and paying the full stamp duty.
There are risks attached to the former process since offshore companies have notoriously poor reporting procedures and neither the solicitors in the UK nor the directors of the company in say the British Virgin Islands will give comprehensive warranties as to whether there are contingent liabilities in these companies.
This means you may be saving 4.5% stamp duty (if this is not shared with the seller as is usually the case) but you may be landed with all sorts of liabilities that you were not aware of.
So it is not necessarily trouble free motoring. If a rock star, for instance, puts his property into an offshore company he owns personally he has to pay stamp duty in the normal way.
The devil is in the detail and we will see what provision the Chancellor has designed to stop the clever accountants circumnavigating the stamp duty. Until then the jury is out.
The government’s plans to provide funding for the construction industry is a much needed shot in the arm since finance for development has either dried up or it is offered on draconian terms that render the process un-commercial.
We build in London less than 10% of properties we require and this is fanning the flames of inflation with property prices.
Halleluiah to the new planning reforms which have been bogged down with unnecessary bureaucracy and red tape over the years and for some development companies it has been like swimming in sago pudding!
Sometimes the planning process has seemed to be set against development and gaining economic planning consent has taken so long that they have added considerably to the cost of the development, increasing costs and pushing up prices.
Thank the Lord commonsense has prevailed.”
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