Mansion Global

New Sales Tax Hits Luxury Buyers and Rental Investors

The U.K.’s unpopular stamp duty increase, effective today, applies to second homes and rental properties

Save

Effective today, luxury buyers and investors must pay more on their purchases in the U.K.

John and Tina Reid / Getty Images
Effective today, luxury buyers and investors must pay more on their purchases in the U.K.
John and Tina Reid / Getty Images

A 3% sales tax surcharge was slapped on buyers of second homes and rental properties in the U.K. today. As a result, tenants are bracing themselves for a rise in rents as landlords seek to offset the unpopular new tax. The increased tax — known as a “stamp duty” — comes on top of higher sales tax rates introduced by the British government on expensive homes in December 2014. The new surcharge applies to sales of both expensive homes and rental properties, and has already dampened demand. Today’s new tax rate means that a buyer of a £2 million property ($2.84 million) will pay £213,750 in stamp duty (about $303,000), compared with £153,750 previously ($218,000). Meanwhile, purchasing a £5 million home ($7.1 million) now carries an additional tax of £150,000 ($213,000); for a £10 million property ($14.2 million), the increase is £300,000 (about $425,000). There is anecdotal evidence that buyers were trying to rush through sales by March 31 to avoid paying the tax. But many experts predict this new rule will now deter would-be buyers of second homes and rental properties from taking the plunge. Larger rental investors — who own already several properties and may be looking to add to their portfolio — had hoped for exemption, but this didn’t come to pass. They, too, will pay the surcharge on new acquisitions. If some landlords choose exit the market, the imbalance between supply and demand will push up prices. Demand for rental properties is growing at a quick pace as soaring house prices block some from taking their first step onto the property ladder. For many, it is a vicious cycle as high rents prevent them from saving up a deposit to buy a home. “We’re about to see supply nose-dive, demand sky-rocket and rent prices go through the roof. The introduction of the new stamp duty charges is set to push the private rental sector into a state of despair,” said David Cox, managing director of the Association of Residential Letting Agents, which represents landlords. “In order for landlords to be able to afford to own a rental property, tenants will begin to see the additional costs passed onto them, which means they could see less money spent on maintaining their property, and also an increase in rent costs.”