March 12 2020

Budget 2020 & UK Property: Stamp Duty & Interest Rates

March 12 2020

Budget 2020 & UK Property: Stamp Duty & Interest Rates

Author: Gareth MarshallCategory: Manchester, UK Property, UK Student Property
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After the UK Chancellor delivered his speech about his spending plans for the UK economy, we analyse the key things UK property investors need to know.

The UK Treasury has just updated Parliament on the state of the UK’s economy and government spending plans for the next 12 months.

But what do UK property investors need to know?

You can read the Budget statement in full here. Below Select Property Group has highlighted the key announcements relating to stamp duty for non-resident buyers, in addition to details about the Bank of England’s emergency interest rate cut.

What is the Budget?

On Wednesday 11th March 2020, Rishi Sunak delivered his first Budget speech since taking over as the Chancellor of the Exchequer just over four weeks ago.

This Budget was originally scheduled for November last year but was postponed due to December’s general election.

It was the first opportunity the newly elected Conservative government have had to outline their spending plans and priorities.

Stamp Duty Increase for Overseas Investors: Explained

Mr Sunak confirmed plans for a 2% increase in stamp duty land tax (SDLT) for non-resident buyers of residential property in the UK.

However, this new surcharge will not come into effect until April 2021 – giving overseas property investors 12 months in which to invest in UK property before this new rate of SDLT.

Based on the current SDLT surcharge rate for non-resident buyers, the average UK residential property priced at £233,000 (as defined by Statista) will incur the following rates until April 2020:

A calculation of stamp duty payment for overseas investors on an average UK property priced at £233,000 - based on exisiting SDLT surcharge pre-April 2020.

From April 2021 onwards, the following levels of SDLT would now be applied on the same £233,000 residential property:

A calculation of stamp duty payment for overseas investors on an average UK property priced at £233,000 - based on the new SDLT surcharge which will come into effect from April 2020.

How Non-Resident UK Property Investors Can Offset the Impact of the Stamp Duty Increase

Buy now!

On a basic level, non-UK resident investors wanting to completely shelter themselves from this new surcharge should buy UK residential property before April 2021.

In addition, the value of the pound versus the US dollar is also currently favourable for those buying UK property in foreign currencies. Compared to June 24th 2016 – before the UK’s referendum on EU membership, the pound is 14.7% weaker against the US dollar.

In just under four years since that vote for Brexit, the pound has fluctuated and, whilst still one of the world’s most resilient currencies, has yet to fully recover its losses.

This, coupled with the pending SDLT surcharge increase, makes for a compelling argument for overseas buyers to invest in UK property now.

Avoid London and choose high-performing regional cities

For many overseas buyers, the idea of avoiding London’s property market to achieve greater affordability in other cities across the UK isn’t a new strategy.

While there’s research to suggest that performance in London has improved over the last 12 months, the capital’s high prices and slow rent growth over the last five years are in contrast to the type of affordability and higher returns that can be found in key regional cities, such as Manchester and Leeds.

Now, the prospect of higher levels of tax when purchasing a residential UK property further increases the attractiveness of property in cities outside of Britain’s capital.

Here’s how much overseas investors will have to pay in SDLT from April 2021, based on average property prices in each city as stated by property portal Rightmove:

 

Table showing the different amounts of SDLT surcharge rates from April 2020 based on different UK cities - London, Leeds and Manchester.

Consider purpose-built student property

It’s one of the UK’s strongest property sectors. Over the last 15 years, purpose-built student accommodation (PBSA) in the UK has delivered high growth for global investors.

You can read our investors’ guide to UK student property to find out more about the strengths of investing in this highly lucrative sector.

Crucially, when it comes to stamp duty, PBSA is generally priced at lower rates. Therefore, SDLT rates are significantly lower, as average prices tend to fall under the price threshold.

In England, this threshold is £125,000. However, if your property is located in Wales, this will change further still. As property in Wales is subject to Land Trasaction Tax (LTT), rather than SDLT, the tax rates when buying property are different.

Emergency Interest Rate Cut: What Does This Mean?

Ahead of the Budget on 11th March, the Bank of England also announced an emergency cutting of interest rates, from 0.75% to 0.25%.

Once again, borrowing costs in the UK are now back at their lowest level in history.

The move was designed to ease pressure on banks and businesses amid the current global COVID-19 outbreak. Governor of the Bank of England, Mark Carney, explained that “The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large and sharp, but should be temporary.”

If you have a fixed-rate mortgage, nothing will change.

If, however, your mortgage is set at a variable rate of interest, you can expect your monthly repayments to be lower almost immediately.

What’s more, if you plan on taking out a mortgage soon, you may now be able to access lower rates of interest than you could have before 11th March 2020.

In Summary

Firstly, a cutting of interest rates should be considered as an opportunity for any UK property investor looking to make a move in the market with a mortgage in the short to mid-term.

The increase in SDLT on residential property for overseas investors, while undoubtedly an increased cost, should not deter any non-resident buyer from considering an investment in the UK:

  • The UK remains one of the world’s strongest property markets
  • There is a huge undersupply in property versus demand from a rising population
  • This is unchanged
  • By making careful investment decisions, such as choosing key regional cities over London, you can offset the impact the new SDLT rates will have on your purchases

Finally, this new SDLT surcharge doesn’t come into effect until April 2021 – meaning overseas investors have a full calendar year to buy and complete on a UK property before these new rates of tax apply.

If you want to find out more about investing in UK property, contact us today to discuss your options and our latest opportunities with one of Select Property Group’s expert UK property consultants.

 

 

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