Strong demand for luxury homes in London’s golden postcodes will go a long way to protecting the value of residential property in Belgravia, Mayfair, Knightsbridge and Kensington against the rise in stamp duty rates for purchasers of second homes
However, MPs claim that Chancellor George Osborne’s multibillion pound raid on landlords risks damaging Britain’s economic recovery.
The Treasury Select Committee says the 3% stamp duty surcharge on buy-to-let properties, overseas buyers and second homes that will come into force on 1 April is likely to result in a reduction in the supply of privately rented homes and push up rents.
On top of conveyancing, mortgage valuation and surveyor fees – plus removal comapny costs – stamp duty land tax is most likely to take the biggest chunk out of any property purchaser’s budget.
The rates vary depending on the purchase price of the property. Stamp duty is not payable on the first £125,000 of a property purchase price, but then rises to:
- 2% on any part of a purchase price between £125,001 and £250,000
- 5% on any part of a purchase price between £250,001 and £925,000
- 10% on any part of a purchase price between £925,001 and £1.5m
- 12% on any part of a purchase price over £1.5m
Although official data from the Land Registry puts the average price of a property in Belgravia at £2,825,105, houses in exclusive Eaton Square can reach £40m and flats £15m
Purchasers of a £40m property must already pay £4,713,750 stamp duty – an effective rate of 11.78% and a £15m flat would pay £1,713,750 – an effective rate of 11.4%
On the other hand, purchasers of a £2.8m property pay £249,750 in stamp duty or just under 9% of the property’s value.
3% SURCHARGE ON SECOND HOMES
From 1 April stamp duty rates rise even higher for buy-to-let investors and second home owners in England, Wales and Northern Ireland who will have to pay an extra 3% stamp duty on each band – including the previously exempt £0-£125,000 band. This extra charge will also apply to overseas buyers.
The government claims this change will make more homes available for owner-occupiers by deterring landlords from building up their rental portfolios. But it will hit the self-made entrepreneurs who safeguard their wealth by investing in prime central London property hardest.
After 1 April anybody purchasing a second house in Eaton Square for £40m would have to pay stamp duty of £5,913,752 an increase on £1.2m or a flat for £15m will have to settle a stamp duty bill of £2,163,750 an increase of £450,000.
The better news is that the 3% increase in stamp duty falls well within the increased value in percentage terms that Belgravia has achieved in the last five years.
In the SW1W postcode, which covers South Belgravia, values have increased by 29.6% as a whole, while property in SW1X – the postcode that covers North Belgravia – have increased by 61%. These figures can be broken down further to increases of 39.2% for flats and 21.9% for houses in South Belgravia and 67.1% for flats and 37.3% for houses in North Belgravia.
All the costs of purchasing a second home, including stamp duty, can be used to reduce the amount of capital gains tax a second home owner must pay when they sell the property. If you buy a second home and sell your primary home within 36 months you can reclaim the 3% SDLT.
There is a shortage of property for sale in and around Belgravia. We are, therefore, confident that the higher rate of stamp duty will not deter UK and overseas professionals from investing in this exclusive part of London.
If you require an up to date valuation of your prime central London property, contact Best Gapp today. Our team of valuation specialists will be happy to give you an up to date sale or rental value of your property.