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  • Tax

    Significant fall in incorporated transactions



    London Central Portfolio has carried out a detailed analysis of HMRC’s Annual Stamp Duty Statistics 2016-16, published on 30.09.17

    • Residential Stamp Duty receipts increased 17% to £8,590m in England and Wales due to the introduction of the 3% Additional Rate Stamp Duty (ARSD), charged on purchases of second properties
    • However, London’s take was up just 1% to £3,410m and Prime Central London (PCL) showed the biggest fall, down 10.3%
    • As a result, PCL’s contribution to Stamp Duty tax take is down a massive 23.5%
    • Transactions have also fallen by 8% in England and Wales
    • London saw the largest drop in transactions at 17%, with falls across all price bands
    • The most notable fall was for property purchases in corporate wrappers, with a drop of 52% in transactions and 58% in Stamp Duty receipts

    Whilst Stamp Duty receipts increased 17% to £8,590m in England and Wales, statistics from HMRC reveal that the graduated Stamp Duty system, coupled with the Additional Rate Stamp Duty (ARSD) on second purchases, has negatively impacted the London property market.

    London saw receipts increase by only 1% to £3,410m and experienced the largest fall in residential transactions at 17%. Transactions under £250,000 fell by 25%, between £250,000 to £1m by 13% and over £1m by 15%. London also saw Stamp Duty tax receipts fall 8% above £1m.

    In Prime Central London (the City of Westminster and the Royal Borough of Kensington & Chelsea) receipts have fallen 10.3% compared with last year. Whilst it continues to generate the largest contribution to Stamp Duty in the country, its overall contribution has fallen by 23.5%, from 14% to 10.7%.

    Naomi Heaton, CEO of London Central Portfolio, comments:

    The new Stamp Duty regime has clearly had a significant impact on London. With the budget approaching, the Government needs to carefully consider the fiscal damage of any future residential tax increases.

    Whilst Stamp Duty take has been buoyed up in 2016-17 by the additional 3% ARSD charge, now representing 40.7% of all tax take in London, any new deterrent could tip the scales in the other direction.

    Despite political hyperbole, at 22% of all transactions, London does not have disproportionately more ‘second’ properties, liable to the ARSD charge, than other parts of the UK. Reliance on ARSD to prop up a market where transactions have fallen 17% year-on-year is a dangerous gamble
    ”.

    Whilst only briefly referred to, HMRC also report that tax take from properties purchased in corporate wrappers has taken a massive tumble.

    Buyers have been liable to a 15% Stamp Duty charge, alongside paying an annual tax, the Annual Tax on Enveloped Dwellings (ATED), up to £218,000 per annum.

    Transactions fell 52% and receipts plunged 58% in 2016-17. With £178m of ATED collected by the Government in 2015-16, this decrease in corporate purchases could see a big tax reduction, not included in HMRC’s Stamp Duty statistics.

     “It is clear that the 15% Stamp Duty charge, coupled with the penal ATED, has disincentivised new corporate purchases.

    Whilst the falling numbers of properties acquired in corporate wrappers is good news for the Government, who has sought to deter such purchases, it is likely that the falling Stamp Duty revenues reported will be accompanied by a reduced level of tax collected from ATED when the results are published in January.

    This will be another black hole for the Government to fill, whose options are diminishing as the residential market gets throttled
    ” Heaton concludes.

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    Given that ATED does not apply to properties that are owned by a property rental business and not occupied by the owner / beneficially owner or his family, the "fall in incorporated transactions" is not really relevant to BTL - it is really only the owner-occupied (or empty investment property") that is caught / affected. See guidance on ATED here: https://www.gov.uk/government/https://uploads.propertytribes.com/sys...-guide.pdf

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    Thanks for clarification Rassie.

    I am interested to learn why a home owner/owner occupier would buy a property in a limited company format.  Can you share any insights?

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    Stamp duty on selling a company - 0.5%

    Stamp duty on selling a house - at least 2% of the price above £125k

    So for expensive houses a company wrapper potentially saves tax

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