The UK government has introduced a new tax on the purchase of additional residential property, raising concerns that Middle Eastern investors could become more cautious about making multiple acquisitions in a market they have traditionally perceived as a safe haven for their cash.
In the annual Budget announcement on Wednesday, the Treasury confirmed it would introduce an extra 3 percent stamp duty land tax (SDLT) on the purchase of "second homes" from April 1, meaning that anyone buying an additional residential property, whether to live in or as a buy-to-let investment, would be liable for the tax.
The new higher rates will be 3 percent above the current SDLT rates. For example, the existing nil rate band will increase to 3 percent and the top slice of SDLT (currently set at 12 percent for properties worth more than £1.5 million, or $2.1 million) will increase to 15 percent.
Transactions completed before midnight on 31 March will be exempt from the levy; likewise properties where contracts were exchanged before November 25 will not be liable, even if completion takes place on or after April 1.
Experts report that the increase in tax payable on second transactions could make investors from the Gulf more nervous, particularly as the UK already hiked the level of SDLT imposed on residential property worth more than £1.5 million ($2.1 million) in 2014.
However, they point out that investors are “well prepared” for the changes, as the UK government issued a consultation on the proposals last year and real estate agents in the UAE and elsewhere in the region have been briefing their clients on ways to offset the levy.
Safina Ahmed, head of residential sales at CBRE Middle East and North Africa (MENA), said there are plenty of wealthy investors from the GCC who frequently visit the UK on business and are increasingly looking to purchase property to save them from having to stay in hotels each time. Those new buyers are looking to share the burden of SDLT, where applicable, with the vendor.
Meanwhile, long-term Gulf investors, who already own one or more properties in the UK, are often looking to acquire more property for younger family members. This group is increasingly sensitive to rising costs, including the new stamp duty levy, she said.
“We are definitely seeing a change in the approach to real estate investment due to price sensitivities. There is more caution, though not enough to put them off buying altogether principally because of currency factors.
“Sterling is comparatively cheap for Gulf investors so that is going some way towards offsetting SDLT.”
Regional economic factors such as low oil prices and political uncertainty in some countries mean Middle Eastern investors are still expected to view the UK as a safe haven for their funds for the foreseeable future.
However, real estate consultancy Knight Frank’s prime central London sales index this year attributed a slowdown in house price growth in the UK capital (from 4.8 percent in the year to January 2015 to 1.2 percent in the year to January 2016 to changes in stamp duty – in particular the new $2.1 million surcharge.
The number of super-prime transactions (£10-$14.2 million and above) fell by a third over the course of 2015, reported Knight Frank, saying: “Changes to stamp duty, a UK property tax, have been blamed for this, with the levy imposed on homes worth more than £1.5 million being increased to 12 per cent of the purchase price.
It added: “On top of this, in April a further 3 percent levy will be imposed on buyers of properties that are either second homes or buy-to-let investments."
Faisal Durrani, head of research at Cluttons, said: “The extra 3% Stamp Duty was first announced in the Autumn Budget statement in December last year and while some investors may have a knee jerk reaction and reconsider a London investment, those that are determined to secure a London asset will absorb the extra cost and take it in their stride. London’s position in the minds of the UAE’s HNWI does not appear to have been dented by the changes, as evidenced by the results of our Middle East Private Capital Survey, which placed the British capital at the top of global property targets outside the Middle East for UAE based HNWI.
Offshore account and mortage advisor Skipton International told Arabian Business last year that the additional tax was unlikely to deter UK expats living in the Middle East from investing back home.
Skipton managing director Jim Coupe said: “While this is clearly not a welcome decision, most expat investors view UK property as a long term investment and hence a 3 percent rise over the lifetime of a property should be seen in that context.”For all the latest real estate news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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