2020 UK Budget
2020 UK Budget

2020 budget | Tue 10 Mar 2020

2020 UK Budget - How Conservative Budget Changes Impact Overseas Investors In London Prime Real Estate Market

On 11th of March the newly appointed chancellor, Rishi Sunak, will deliver the much anticipated budget for 2020 - The first budget for the United Kingdom as a non-european member since 1973.

Boris Johnson and the Conservative party have outlined in their 2019 landslide-winning manifesto the changes that are due to impact London’s prime property market.

Overseas investors or non-UK residents looking to purchase property in the UK will be interested in understanding all of the forthcoming impacts to future transactions.

Outlined here are all of the significant details buyers should be aware of in order to remain comfortably informed when extending their portfolios to the world’s most desirable and exclusive prime real estate markets.

What Are The SDLT Surcharges for Overseas Investors?

 
Effective midnight of the 11th of March, all overseas individual buyers or companies will be expected to pay an additional 3% surcharge as part of the Stamp Duty Land Tax (SDLT) payable on the purchase of any UK property.

This equates to 3% on top of the standard rate, plus any additional property SDLT rates charged for second home ownership, outlined below.

 

Band

Standard SDLT Rates

Additional Property SDLT Rates (Worldwide)

Overseas company or non-UK resident

£250k-£925k

5%

8%

11%

£925k-£1.5m

10%

13%

16%

£1.5m+

12%

15%

18%

 

The result is that at the prime end of the market, a non-resident buying a second home worth more than £1.5m will be paying 18% total stamp duty on new purchases.

A non-UK resident has been defined as an owner who has not been present in the UK for 183 of the previous 365 prior to the purchase date. It is worth noting that the additional 3% surcharge paid can be reclaimed if the buyer spends the subsequent qualifying number of days in the UK during the year succeeding the sale.

UK registered companies that are controlled by non-UK residents are also subject to this surcharge.

Why Has Foreign Investment Been Targeted?

 Currently, it is just as easy for non residents or overseas companies to purchase property in the UK as residents. One of the debate-provoking beliefs is that foreign investment in the UK property market has added additional strain to what is already considered a limited supply, resulting in inflated housing prices.

The perception is not unique to the UK. In Australia and also parts of the United States it is believed that young first time buyers are being priced out of the market as a result of overseas investment.

The majority often overlook the obvious benefits that overseas investment brings to the UK economy for new build initiatives and developments.

The fundamental reason to explain the issues for first time buyers is the clear and disappointing completion rate of government backed new home initiatives.

What is also often overlooked is the obvious fact that the majority of overseas investors are purchasing property in a completely different level of the market from the average or first time buyer, the prime real estate market specifically.

The reform has been implemented to tackle these perceived issues. Thankfully for first time buyers, the government has made indications toward a number of new build investment initiatives which will go much further to tackling these issues, although this area of the market will be praying that Boris delivers on these promises.

The majority of countries globally have mechanisms that add additional charges for overseas buyers. The UK is somewhat falling in line with other nations in this respect meaning these tariffs have been somewhat of an inevitability.

Is London’s Prime Real Estate Market A Good Investment in 2020?

It is clear that London’s prime market has benefited immensely as the political fog that has strangled it has now cleared. A  decisive Conservative election victory and subsequent Brexit deal completion has been monumentally important in bringing the prime real estate market out of its stagnation.

The clarity did not take long to start having an effect on the market. In the few hours following the general election result a number of multi-million pound mega deals were completed, including a £65m purchase in Belgravia by a Chinese businessman which became the highest amount paid for a penthouse in 2019.

This trend has continued in the month after the general election and many are reporting a significant boost to property interest. Galliard homes, the London property developers, have reported an increase of 26% of enquiries at it sales offices compared to the previous year.

This trend is expected to continue throughout 2020 as vast sums of money that were waiting to be invested can now be released to the market. Many companies were playing their cards close to their chest, but are now prepared to push the chips into the middle.

Although the value of the pound rallied slightly in the last few months, it is still relatively low when compared to its pre 2016 levels. This means that overseas investors still have the opportunity to capitalise on the beneficial exchange rates. Again, this will not be expected to reach full strength until 2021.

The fact is that, despite the upcoming surcharge increase. London remains a fundamentally stable economy boasting the very best the prime market has to offer.