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London home buyers hit by stamp duty hikes in George Osborne’s Budget

Friday, March 23, 2012
7:50 AM

Property chains are already showing signs of crumbling due to the government’s stamp duty hikes, estate agents have warned.

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Chancellor George Osborne placed a stamp duty rate of seven per cent on £2 million homes in Wednesday’s Budget, rising to 15 per cent for homes in this price bracket bought through companies.

The government wants to clamp down on the practice of “enveloping”, whereby people try to avoid stamp duty by using a company to buy a residential property. The home is then sold on as shares in the company in a bid to sidestep the duty normally paid.

But Ed Mead, director at London-based Douglas and Gordon, said 40 per cent of the estate agent’s business was done with companies.

He said: “These are people with natural corporations or trusts. These people are suddenly being told they’ve got to pay 15 per cent. That’s almost half of deals in central London.

“This is not going to solve anything. It’s going to clobber lots and lots of normal people.”

He said the people he dealt with were not trying to avoid stamp duty but bought in the name of companies and trusts “because it suits them”.

Mr Mead said people buying through companies would now be at a huge disadvantage if they were in competition with individuals paying the seven per cent duty instead of 15 per cent.

He said: “This really, really is thick. It hasn’t been thought through. Every single deal that we’ve got that involves companies, the brakes have been slammed on. We’ve got four and I know of many, many more.”

The stamp duty rises will mostly affect buyers in London, an area which has been key in supporting the market by recording consistent price growth due to strong overseas buyer interest.

London homes have been vital in keeping average prices up, with the capital often viewed as the most “healthy” and stable area at a time when the housing market generally remains weak and patchy.

London asking prices have reached a high of £455,159, up 7.3 per cent year-on-year, Rightmove found this week, while the typical asking price for homes in Kensington and Chelsea broke the £2 million barrier for the first time. The Midlands, Wales and the North West saw prices dip year-on-year.

Of the 2,834 homes sold in England and Scotland in the last two years for more than £2 million, 2,059 were in London and just two were in Yorkshire and the Humber, according to property website Zoopla.

Mr Mead said some would-be buyers were asking for heavy price discounts.

He said: “It’s very easy politically, thinking they’re clobbering the rich.

“They don’t understand London is a massive contributor to national wealth and London is a top-down property market.

“People aspire to live in bigger and bigger homes. If you cut the string at the top of the market, the whole thing collapses.”

Mr Osborne said he would consult on the introduction of a “large annual charge” on £2 million homes which have already been bought through companies.

The chancellor said capital gains tax would also apply on homes bought through overseas companies “to ensure that wealthy non-residents are also caught by these changes”.

Martin Bikhit, managing director at central London-based estate agent Kay and Co, said a deal at the top of a chain collapsed yesterday because the purchaser would have had to pay the seven per cent stamp duty.

He said that below in the chain a family were buying a £600,000 property, a relatively modest sum for central London, so they could move their children into a school catchment area. He said they would also have to start again as the deal could no longer go ahead.

Mr Bikhit said: “There are probably a lot of people running around trying to salvage situations.”

He said that unless those at the top of the chain had “a minimum of £40,000 sloshing around, there will be no way of avoiding that”.

“There will be either a renegotiation of the purchase price, which will have a knock-on effect further down the chain, or the whole chain collapses.”

Mr Bikhit said the situation should be looked at from the point of view of a family on the brink of buying their dream home or a first-time buyer unable to get on the property ladder because a chain had collapsed.

He said the “recklessness” of the stamp duty increases would hit many Londoners.

“It’s not just the stamp duty, it’s the lawyers’ fees, the surveys, all these costs which can run into the loss of thousands of pounds, which are utterly wasted,” he said.

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