Overseas buyers of UK property would face a stamp duty surcharge of 3 per cent under proposals unveiled by the Conservative party ahead of its manifesto launch.
Non-resident homebuyers currently pay the same rates of stamp duty land tax as those living in the UK, but the government has been consulting on adding 1 percentage point on the duty for overseas buyers. This week, the Conservatives said they would bring in a 3 per cent surcharge for these buyers if elected with a majority.
The party estimated the duty would affect up to 70,000 transactions a year and raise £120m in revenues — money it would set aside to tackle the problem of rough sleeping. It cited academic research suggesting overseas buying activity drives up house prices and pushes out first-time buyers and other domestic purchasers.
Rishi Sunak, chief secretary to the Treasury, told the BBC Radio 4’s Today programme that UK residents should “have a good bite at the apple when it comes to buying a home” and pointed to higher tax charges for overseas buyers in other countries such as Canada, Denmark and New Zealand.
“It will have a positive impact on home ownership and a reduction in house prices. That’s what excessive foreign ownership has done over the past few years,” he said.
If it comes to pass, the plan will leave some foreign buyers at the top end of the market paying as much as 18 per cent in stamp duty. The top rate is 12 per cent, charged on the portion of the price above £1.5m. But where buyers (including British expats resident abroad) already own a property elsewhere, the new surcharge would be in addition to the 3 percentage point surcharge on second homes and buy-to-let properties, which is levied on the whole price.
Housing market experts said the policy would be met with dismay by property developers, since their big city centre schemes were often made possible by future purchase pledges by overseas buyers and the deposits they provide.
“Hitting overseas buyers with higher stamp duty threatens the London housing market, especially before any post-Brexit bounce could kick in,” said Dean Clifford, co-founder of Great Marlborough Estates, a London focused developer with £1.5bn of residential projects under way. “The Conservatives should be issuing a clear message that Britain is open to international business and investment, not targeting foreign investors.”
Neal Hudson, director at market research company Residential Analysts, said a better moment to have brought in such a policy might have been 2012-13, a time when foreign buyer activity was contributing to a booming market in London and the Southeast. He added that if enacted, the extra stamp duty is likely to tighten the market for city centre development and further reinforce the shift to other housing formats such as “build to rent” funded by large institutions.
“While rebalancing to the domestic housing market ought to be a positive, there is clearly some risk that we do some damage to the ability to build new homes,” he said.
Lucian Cook, director of residential research at estate agent Savills, said the proposal would test the “fine line” between raising more tax revenues and discouraging housing market investment. “Stamp duty has become the political weapon of choice to influence the housing market but [politicians] have done things incrementally to try and work out the point at which it starts to become counterproductive.”
He added that the proposed surcharge was likely to lead to greater willingness on the part of sellers to soften prices, as happened under previous rises in stamp duty at the top end of the market in 2014 and for second homeowners in 2016.
“There was an understanding of the additional cost it was putting on the buyer, and there was an adjustment accordingly. Wherever you’ve got overseas buying activity it’s going to mean sellers will need to be increasingly pragmatic,” he said.
Labour said the Conservative proposal was a “watered down” version of its own strategy to boost local home ownership by imposing a levy on overseas companies buying housing.
Jonathan Reynolds, Labour’s shadow City minister, said: “A Labour government will enact an offshore company property levy that is far bolder than this surcharge, and we’ll release the full details of this when our fair tax programme is published in full in the coming days.”