U.K. tax rise unlikely to deter HK buyers

PUBLISHED : Wednesday, 18 April, 2012, 12:00am
UPDATED : Wednesday, 18 April, 2012, 12:00am


New tax measures unveiled in the budget announced by Chancellor of the Exchequer George Osborne last month mean Hong Kong buyers of multimillion-pound homes in Britain will now pay more tax.

As part of a package of measures to tax wealthy people more heavily, the government introduced a higher rate of stamp duty for homes valued at more than ?2 million (HK$24.5 million), raising it from 5 per cent to 7 per cent. This means, that from March 22, buyers have been paying an extra GBP20,000 in stamp duty on every GBP1 million they spend on homes sold for more than GBP2 million.

Hong Kong investors who buy British homes using companies based in tax havens like the Isle of Man will be particularly badly hit, because they must pay stamp duty on multimillion-pound homes at 15 per cent from now on. Until the budget, some buyers had used these companies as a way to avoid paying most of the levy, some paying stamp duty of as little as 0.5 per cent.

To dissuade overseas buyers from investing via tax haven companies in future, the government will, from April next year, charge such buyers capital gains tax when they sell property.

In addition, it will consult on introducing an annual levy, equivalent to 15 per cent of the market value, on homes owned by these tax avoidance vehicles.

The government will also consult on introducing a 'mansion tax', advocated by the Liberal Democrats, where an annual charge is levied on multimillion-pound homes. However, most Conservatives oppose this tax, so it is unlikely to be introduced or only in watered down form.

In the hours after the chancellor's announcement on March 21, there was a stampede to make home purchases before the midnight deadline when stamp duty was raised, with Knight Frank clients exchanging GBP107 million worth of property and Savills clients GBP50 million, on March 21. London estate agency Douglas & Gordon said many deals fell through.

Although the increase in stamp duty to 7 per cent will make buying multimillion-pound homes less profitable for Hong Kong investors, it will not negatively affect the value of these assets, analysts say.

After an initial period of adjustment when there would be tough negotiations between buyers and sellers over homes valued at around GBP2 million, the market would absorb the stamp duty increase said Liam Bailey, head of residential research at property consultancy Knight Frank.

'It is important to bear in mind that on average prime London prices have risen by 42 per cent since 2009, with no pause in the increase in values since the introduction of the 5 per cent stamp duty rate on properties sold for ?1 million or more, in April 2011,' said Bailey. Also, despite the increase, Britain's stamp duty remained lower than in some other locations, such as Singapore where it was 13 per cent, so it would not be a huge deterrent to investors, Bailey said.

Louise Vaughan, head of London search at buyers agency London Property Search, said the 15 per cent stamp duty rate for companies based in tax havens was more likely to have a negative impact on the desire of Hong Kong and other overseas buyers to invest, although many still would. 'Many may decide that London still remains the safest place to park some of their assets,' she said.