10 May 2023
After gaining momentum in the local council elections, there are reports that Keir Starmer’s party may introduce higher taxes for non-UK residents purchasing UK property, as well as potentially restricting the sale of new build properties to foreign investors. This policy looks to be aimed at getting first time buyers on the property ladder and gaining much needed taxes revenue. We look at the potential impact of the measure.
Since April 2021, overseas buyers have been subject to an additional 2% stamp duty land tax (SDLT) surcharge on purchases of residential property. Since its introduction, this surcharge alone has provisionally generated tax revenues of £219m from 18,500 transactions up to the end of 2022.
The latest set of SDLT statistics released by HMRC show that the surcharge doesn’t seem to be slowing down the acquisition of residential property by non-UK resident buyers. In fact, there has been a steady increase of property purchases since April 2021, with 700 more properties being bought by non-UK residents in the last quarter of 2022 than compared to the first three months of the charge being bought in.
This may be a reason why a Labour government would be looking to increase the surcharge further to deter foreign investors and allow the property market to be driven by UK buyers, including first time buyers, families and landlords, all of which should help plug the housing crisis. Alternatively, if the deterrent doesn’t work, it should at least provide further funds for a Labour government.
Taking a look forward, as the property market seems to hit a more difficult period when compared to the boom we saw leading out of the last covid lockdown, we’ve calculated the financial impact an increase in the surcharge could have for the Treasury. Say the property market shrinks by around 10%, but the non-resident SDLT surcharge is doubled to 4%, it could be estimated that this would generate a further £128m of SDLT receipts in a year – a sum that we are sure that any government would welcome.
On top of the tax implications, the Labour government may also restrict the number of properties that foreign investors are able to buy. They propose to restrict new build developments so that only 50% could be sold to overseas investors, as well as only allowing first time buyers to purchase properties for a certain period before opening up the properties to the wider market. These policies may be difficult to manage, and they could also have the effect of slowing down property developments, particularly considering that overseas buyers are often the ones that purchase off plan properties from developers and are able to provide the upfront cash required.
The precise proposals for an SDLT hike remain to be seen but, with UK taxpayers already feeling the strain, perhaps we could see further proposals that attempt to shift more of the tax burden onto overseas investors. The challenge will be ensuring such a strategy does not have a wider detrimental economic impact.