Estate agents are divided about whether higher taxes will hit house prices, with experts disagreeing about the impact of increased Stamp Duty and the proposed mansion tax. New research suggests the global wealthy are not much bothered by Stamp Duty at 5pc on properties priced at more than £1m or 7pc above £2m – even though the latter impost means a taxbill of at least £140,000 nominally just to update the Land Registry.
Nearly six in 10 overseas millionaires named residential property in London as their favourite asset class, according to Bill Siegle, a senior partner at international estate agents Cluttons. He said: “Quite remarkably, 43pc of these highly mobile investors state that the global financial crisis has had no impact on their view of London as a top investment target location. In fact, almost a third – or 29pc – goes on to claim that London is better-placed because of the Eurozone difficulties.
“The fundamentals of the London economy remain strong; the city attracts dynamic businesses and skilled professionals from around the globe. This gravity effect underpins the city’s appeal to wealthy individuals looking for investment opportunities in the next 12 months.”
This has created a ‘Manhattan-on-Thames’ effect, where house prices in London continue to rise despite gathering economic clouds and falling house prices elsewhere. People who are unwilling or unable to buy at these prices – sometimes described as ‘generation rent’ – could be forgiven for wishing for a house price crash and may welcome Liberal Democrat proposals for a mansion tax.
But Lucian Cook of international estate agents Savills pointed out that wealthy homeowners already pay more than their fair share of property tax. He said: “In 2010 properties worth over £1m accounted for just 1.6pc of recorded sales but 26pc of residential stamp duty land tax (SDLT) receipts – some £1.2bn.
“Since then a new 5pc rate for properties sold for in excess of £1m and 7pc for those for over £2m have been introduced. Applied to the deals recorded in 2010 this new level of taxation would have accounted for 34pc of the SDLT take, or £1.85bn.
“Inheritance tax figures suggest that 1,456 estates with total assets exceeding £2m were subject to IHT in the most recent year for which there are figures. Of these 1,173 or 81pc comprised residential property with an average value of £1.13m, generating an IHT take of £831m.
“That means that 0.7pc of the housing stock held at death generated 36pc of the IHT receipts from residential property. Our analysis suggests that high value property makes a disproportionate contribution to the tax take from residential property.
“Increased taxation alters buyer behaviour. Since the 2012 Budget, we have seen sales in the £2m to £2.2m price bracket fall by 29pc, while those between £1.8m and £2m have risen by 37pc.”
The vast majority of homeowners who live in properties worth less than £2m may wish they had such problems and feel little sympathy for those affected. But if too much tax drives foreign buyers away, homeowners of all shapes and sizes may find their biggest asset is worth much less than it was before.