SDLT surcharge on residential property will slow new housing delivery

31 Mar 2016

Policy area: Residential, Tax & Finance

The day before the Government’s 3% surcharge on additional residential property comes into effect, the real estate industry has expressed concern at the impact it will have on the country’s nascent build to rent sector, which currently has over 40,000 new units in the development pipeline [1].

Based on typical rental yields for a ten to fifteen year investment on build to rent, the British Property Federation (BPF) estimates that the tax will be equate to losing a year’s income, and that investors will undoubtedly be reappraising possible investments as a result of the change.

The build to rent sector has attracted over £4bn investment since the start of the year, and is delivering high-quality private rented homes at affordable prices, and at a quicker rate than those built for sale. 

The Government had indicated that it would not apply the new 3% SDLT surcharge to institutional purchases, but decided to do so in the Budget. In contrast, the Scottish Government has decided to exempt institutional transactions.

The UK Government’s change of heart on the surcharge has drawn surprise from one of President Obama’s former housing advisers, Mark Linton, the former chief of staff for the US department of housing and urban development, who said it left many observers “scratching their heads” [2].

Ian Fletcher, director of policy (real estate), at the British Property Federation, said: “Many institutional investors will find it difficult to fathom why something so good – adding to housing supply – is taxed so highly. Given that in many cases the tax will equate to a loss of a year’s worth on income, it is unsurprising that many investors are thinking twice about entering the sector. 

“As well as the direct financial impact, what we cannot also afford is for this to knock the sector’s confidence when there are so many units coming out of the ground and the potential for many more.”

ENDS

Notes to editors

[1] 40,000 build to rent units in planning, under construction or complete can be seen on the BPF's Build to Rent Map.

[2] Mark Linton's comments were first made in Building magazine on 24th March 2016.