It’s 12.29pm and I am huddled in a room with my colleagues staring at a large TV screen waiting for George Osborne’s last Autumn Statement for this parliament. In previous years the Autumn Statement has been a sombre affair for tax advisors, focusing on government spending while leaving the suspense of tax changes to Budget Day, but that is no longer the case. I look around the room and see my colleagues with laptops, pads of paper and pens ready to scribble, tap, and scrutinise every word uttered by the chancellor as he takes centre stage.
My colleagues and I were running around, reading the fine print of the Treasury documents, answering questions and speaking to clients
As expected, Osborne sets the scene before announcing his proposed tax changes. With just five months until the general election, he unleashes his piece-de-resistance – the plan to significantly overhaul the taxation of property purchases, or stamp duty. It is a politically astute move and perhaps the Conservatives’ answer to Labour’s proposed mansion tax. But what does this mean for us and for our clients?
As with any tax changes, there are winners and losers. According to the chancellor, for the 98% majority of homebuyers, the stamp duty reform will save money as he abolishes the “slab system” in favour of marginal rates that rise progressively with the property purchase price – similar to the way income tax is calculated. The remaining 2%, specifically those purchasing a home for significantly more than £937,500, face an eye-watering tax increase with a top rate of stamp duty being 12% for properties priced over £1.5m. Despite the rate increase, government forecasts predict that stamp duty reform will cost the Treasury around £800m a year.
A flurry of activity broke out following the stamp duty announcement. My colleagues and I were running around, reading the fine print of the Treasury documents, answering questions and speaking to clients. As a private client tax advisor my day-to-day work is intertwined with my clients, their families and their business affairs. My role as a trusted advisor is to help my clients to comply with the UK tax system and inform them of any changes that may affect them as soon as possible. With the announcement, phones start ringing. A number of clients – and even some colleagues – were in the middle of purchasing a family home as Osborne revealed his reforms. What should they do? The change to stamp duty was to be enacted at midnight. While there would be some transitional provisions for those in the process of purchasing a property, they needed to have exchanged sale contracts to be eligible for the old system before midnight. Mad rushing, contacting, and pushing property lawyers to exchange contracts followed immediately after the announcement.
Once the day was over and the clients were happy, it was time to head home ready for the next day.
Since the Autumn Statement, I have been following the post-reform reaction from clients, the media, and colleagues. London and the surrounding areas in the southeast are set to feel the biggest impact of the stamp duty changes. According to the estate agency Savills in an in-depth analysis for the Sunday Times, purchases of properties in 15 local authorities will on average cost more to acquire, of which 12 are in London. There is no doubt the reforms will hit the high-end homebuyer hardest.
There are a lot of complicated details in the stamp duty reform documents and we’ve been getting a lot of questions around “mixed use”. This means that if a property is used partly as a home and business, it qualifies for the commercial slab rate of stamp duty, which at 4% is a long way below the new top slice of residential purchase taxes at 12%. So a multimillion pound estate with a working stud farm, a riding school, a boarding kennel or a health spa for example would have a much lower tax bill than a purely residential country pile. Perhaps I will soon be digging out my wellies, and reading up on animal husbandry.
On a more reflective note, I question whether we are moving to the more continental wealth tax system, especially with the proposal to update the capital gains regime to collect tax from non-UK residents disposing of UK residential properties. Historically, the UK has taxed net income and with the rise of property taxes, I expect the wealth tax seed has been planted and for the trend to continue.
Dermot Callinan is head of private clients at KPMG UK