There has been a drop of between 23% and 29% in the sales of £2m-plus properties since the Budget when Stamp Duty levels were raised, with rich investors deciding to put their money elsewhere.
London Central Portfolio (LCP) says that as a direct result, the tax take is going down, not up, and thousands of jobs in the rental and building trades industries are at risk.
It accuses the Chancellor of not doing his homework, by failing to take into account that almost half of all properties in central London are bought as rental investments.
It said that such properties are bought as a legitimate business proposition and each purchase generates money and jobs.
LCP said the Chancellor has shot himself in the foot and said that there was the possibility of ‘economic carnage’ rather than economic gain.
In the Budget, Chancellor George Osborne raised Stamp Duty from 5% to 15% for companies buying homes over £2m.
The Government is also considering levying an annual charge on these companies of up to £140,000 and a capital gains tax on the sale of the property. An estimated 60% of all properties over £2m are in prime central London.
LCP estimates that prior to the Budget, private rental investment boosted the UK economy by generating £1.5bn income for the property services sector whilst topping up the tax coffers by a further £0.4bn through Stamp Duty and VAT.
LCP used data from Lonres, which records a 23% reduction in the number of property sales above £2m since the Budget, equivalent to the loss of at least £0.5bn worth of property investment. The Knight Frank Prime Central London Index estimates a 29% drop in exchanges of property between £2m and £10m in the three months to the end of July.
As a rule of thumb, says LCP, each new investment property purchase brings in additional revenue of about 20% of its value, through refurbishment, lettings and all the associated professional services and trades.
The reduction in sales currently seen would translate, in one year, to a loss to the economy of £120m, equivalent to 3,000 jobs (LCP bases this on the average salary in the Royal Borough of Kensington and Chelsea of £39,000).
It forecasts that the loss to the economy could escalate to £715m over the next five years, and the Exchequer’s loss could be £1bn over the same period.
This compares with the Government’s estimated Treasury intake of £270m from increased Stamp Duty, and the proposed annual charge and CGT.
LCP says that another issue that the Government has failed to recognise is that any increased costs will be passed down by landlords as increased rents.
Naomi Heaton, CEO of LCP, said: “The increased cost of investing due to the proposed tax changes is already turning investors away.
“Investors who would have previously bought for over £2m are now evaluating and considering other options. The Government has failed to recognise that if the numbers don’t work, [global] investors will go elsewhere. And if they go elsewhere, jobs will suffer.
“There is, of course, the myopic view that London should just be for Londoners. However, it is totally unrealistic to think that some of the most iconic property in the world should be the sole preserve of the Brits.
“In a world of increasing globalisation, the Government should be embracing internationalism, not old-fashioned protectionism.”
LCP has submitted a report to HMRC and the Treasury.
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