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Hammond's US$820m reason to shun UK home tax review

Thursday, November 3, 2016 - 11:13

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Investors in London homes, buffeted by falling values and transaction volumes, are pressing for UK Chancellor of the Exchequer Philip Hammond to review an increase in sales taxes. Hammond has a US$820 million reason to say no.

[LONDON] Investors in London homes, buffeted by falling values and transaction volumes, are pressing for UK Chancellor of the Exchequer Philip Hammond to review an increase in sales taxes. Hammond has a US$820 million reason to say no.

That's the extra amount the British Treasury estimates it has raked in since April 1, after Hammond's predecessor George Osborne increased stamp duty charges on UK home transactions to as much as 15 per cent for the most expensive properties.

"Everyone blames Brexit for the slowdown, but the truth is the market had already been pummeled by stamp duty reforms," said Ian Sutcliffe, chief executive officer of Countryside Properties Plc. "We advocate that the government grant a holiday on the charges to spur the market because something has to be done and something needs to change." The stamp duty increase for buy-to-let landlords and second home owners followed an increase in charges for all luxury-home purchasers in 2014. The higher revenue may be a deterrent to reviewing the tax change even as values in the UK capital fell for a fifth month in August, the worst streak since 2009. Preliminary data shows home sales in the capital fell 78 per cent in the five months through August from a year earlier.

The additional tax "stops people from moving and that's very bad for the economy," said Helen Gordon, chief executive officer at landlord Grainger Plc, who wants the government to review the tax rise. "A U.S. banker isn't going to spend £500,000 (S$853,548) on stamp duty with Brexit hanging over their job." Gordon was speaking at a seminar about Brexit's impact on London property organized by broker CBRE Group Inc.

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Getting the Chancellor to reduce or repeal the taxes in his Autumn Statement on Nov 23 will be difficult, said Savills Plc research director Lucian Cook. "The increase has been a net revenue raiser for the government," he said. "We would have to see transactions fall more significantly to for it to be considered."

London's most expensive properties have been "disproportionately" affected by extra charges, Mr Cook said. The value of homes in Chelsea and Hyde Park fell 9.8 per cent and 7.5 per cent respectively in the year through September, according data compiled by broker Knight Frank LLP. Homes in Knightsbridge declined 5.9 per cent.

Tax receipts for the third quarter were the highest in at least eight years, according to data compiled by Her Majesty's Revenue & Customs, and almost 40 per cent of receipts collected in the quarter related to the 3 per cent increase, the data shows.

The 0.6 per cent drop in London home values in August followed a 1 per cent fall the previous month, LSL Property Services and Acadata said. The annual pace of growth has now slowed to 2.2 per cent, the weakest since early 2012, and the average value is £580,930.

Home prices in London will fall for the first time since 2009 next year, according to Countrywide Plc, the nation's largest real estate broker. Price growth for all homes in the capital will slow to 3.5 per cent this year and drop by 1.25 per cent in 2017.

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