The stamp duty rise of 3% in April may be negated where six or more residential properties are bought in a single or linked transaction.
Prime Central London property will see continued demand, particularly from those driven by currency weakness, with some investors considering larger investments in response to last November’s surprise increase in stamp duty on buy-to-let and second hand properties,” says independent property buying agency, Black Brick.
“As predicted in December, we are seeing a flurry of activity from potential buy-to-let and second home investors as they rush to complete on purchases ahead of April. We are also seeing an increased interest in sub £1million properties, where the impact of the rise is lower than on more expensive real estate,” says Camilla Dell, Managing Partner of Black Brick.
Exemptions for multiple residences
“However, we believe that these planned exemptions will encourage those with upwards of £2million to invest to consider buying multiple residential or mixed-use properties. Such purchases can be significantly more complex than individual acquisitions but, given the continuing upward pressure on rents, especially in London, there’s a strong case for investing in rental properties in the capital. These multi-property investments are likely to be much more attractive after April’s tax rise,” Dell adds.
Elaborating further, the property consultant says: “The government’s consultation document, published on 28 December, has confirmed a number of exemptions for the additional 3% stamp duty charge on buy-to-let investments, which will be introduced from April. This would take stamp duty to 13% for properties worth between £250,000 and £1.5 million, and 15% for those worth more. “It states that the new higher rate will not apply to nonresidential property purchases, which instead pay a maximum stamp duty of 4%. These transactions include those where six or more residential properties are bought in one transaction, and mixed-use properties, which contain both residential and non-residential elements. Furthermore, where six or more residential properties are bought in a single or linked transaction, the buyer will still be able to apply multiple dwellings relief, effectively negating the stamp duty rise.
consultation document states: “The government is considering an exemption from the higher rates for those making significant investments in residential property, given the role of this investment in supporting the government’s housing agenda.”
“Regardless of any dampening of demand from smaller-scale buy-to-let investors, there will always be demand for prime London property, given perennially limited supply. This year could, we believe, generate opportunities for such buyers to snap up relative bargains through distressed sales – especially those driven by currency weakness.
“Conversely, the current strength of sterling may encourage some overseas owners to sell UK property to crystallise exchangerate driven gains. For example, a Russian buyer who bought a UK property in 2012 could more than double their money in exchange rate terms alone, by selling and converting sterling back to rubles.
“However, such opportunities are likely to be sporadic and continuing low interest rates in the UK is likely to mitigate against any wider sell-off, despite London’s prime market being fully priced. Buyers will also need to be extremely mindful of the higher acquisition costs that have been introduced by successive changes to the UK tax regime.”
Where to buy if you have £1 mil?
“Two central London areas I would recommend investing £1m in 2016 are the City Fringe and the Southbank and, in terms of areas that have now re-entered the £1 mil price bracket, Notting Hill may be coming back into view for investors if prices continue to fall,” says Dell.
“Compared to the wider boroughs, residential prices in and around Southbank have largely over performed in terms of average prices; average prime prices in Southbank have risen by 28% in the three years to the end of June 2015, compared to the wider average across Prime Central London, which is of 18% (Knight Frank). Forecasts anticipate that prices will continue to rise at a rate of 20-25% over the next five years (according to Knight Frank & Savills). Due to its riverside location, there are new high rise buildings with far reaching views which can’t be built in other central areas due to planning laws. Connectivity in the area is excellent; Southbank is within walking distance to the City, Jubilee Line – connecting it to the West End and East London – and overground services from Waterloo and London Bridge mean that it is well connected to Kent, Sussex, and Surrey. Furthermore, it is in very close proximity to a number of worldrenowned cultural experiences, for example, Borough Market, IMAX, London Eye, and Royal Festival Hall. Nearby Southwark and Bermondsey are also culinary hotpots.”
“The areas surrounding the City are now established prime residential markets; property prices in these areas have outperformed traditional Prime Central London locations over the last two years and current 12 month price growth stands at 5.9% (Knight Frank). Global businesses have announced plans to relocate their offices to the area and over 15,000 new businesses were set up in Tech City in 2013/14, more than anywhere else in the UK. The arrival of Crossrail in 2018 will make Farringdon one of Britain’s busiest train stations, linking Thameslink, Crossrail, and London Underground services; the area will be served by three Crossrail stations, with extra station entrances at Barbican and Moorgate, making this one of the best connected parts of London.”
Notting Hill remains one of the most desirable residential areas of the capital; you still won’t find a huge amount of space for £1m, but the area is now showing negative price growth (a drop of 3.5% in the 12 months to Oct 2015) and the area is leading the way in terms of price drops compared with the other prime residential boroughs.”