The stamp duty surcharge

– an update

An overview

As we reported back in December 2018, Prime Minister Theresa May announced plans to add an additional 1 percent surcharge for foreign purchasers of residential property, in addition to the existing 3 percent stamp duty on second homes and buy-to-let purchases that came into effective back in April 2016. 

Now, the government has recently outlined a proposal to charge overseas buyers an additional 1 percent surcharge on top of their regular stamp duty charges according to a consultation paper published recently – effective from October 2019. The article outlined that money raised from this surcharge will be spent on ending rough sleeping throughout the UK. 

Broken down

With Brexit on the horizon and creating impeding uncertainty, strengthening the interest from over seas investors is crucial. The UK offers a great number of attractive incentives to property investors  – the excellent rental yield that is apparent, particularly in the north, is very favorable in comparison to yields that can be as low as 1 percent in other countries. The UK has an exemplary and well respected education system – such that over a million of overseas students study at the various UK educational institutions every year, with China accounting for over 20 percent of this number; The governance is also one of the most open and transparent in the world, which plays a huge part in ensuring the continued growth and stability within the property market – and the nation as a whole. 

A point in note is that the 1 percent surcharge is extremely low in relation to the value and benefits that the UK brings – especially so when in comparison to other countries, such as Australia, which has a 7 per cent surcharge. The UK’s natural strength for making a mark in the global market continues to entice overseas investors to focus on the market – while the surcharge may seem like a major change at present, it won’t make a huge difference in the long-run – short term minor fluctuation will reduce to become the normality in line with market demands. 

Going forwards 

With the government intending to finalize the surcharge by October 2019, it would be advisable for overseas buyers who are currently reviewing their property portfolios and earmarking developments and locations with a view to purchase within the next 12 months, to increase their priority to ensure full completion by October, thereby avoiding this surcharge as much as possible in the upcoming year. It is highly likely there will be a ‘bottleneck’ effect; in that the increased caution brought about bu the Brexit uncertainty will build up to then open the floodgates to the pent up demand in a few months time as overseas investors increase their priority at the last minute to purchase, in very much the same way the 2016 additional property stamp duty became effective. There will certainly be some negligible fluctuation in the coming months, particularly with Brexit looming, but the market will ultimately regain stability. It is highly likely that it will be eventually become the normality irregardless, given the fundamental supply and demand for property

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