On July 8, the Chancellor of the UK Government, Rishi Sunak, announced first-time property buyers would pay no stamp duty tax on properties up to the value of GBP500,000 (AED 2.36 million), with immediate effect.
With uncertainty stunting the growth of the real estate market in the UK as a result of Covid-19, these latest measures by the UK Government are likely to increase confidence with those who have previously been hesitant to buy.
Some investors may wait to see how property prices change over the coming months; however, the tax savings afforded to everyone as a result of this announcement could prompt many to reconsider their options.
Taking Advantage Of The Savings
Middle East investors will also be able to take advantage of this stamp duty tax holiday, either as a homeowner, by purchasing second homes or buy-to-let properties.
A homebuyer purchasing their first property will be exempt from paying any stamp duty tax, up to GBP 500,000 (AED 2.36 million), denoting a potential saving of up to GBP 15,000 (AED 70,000). The zero percent rate was only previously applicable to properties valued up to GBP 125,000 (AED 587,500), with the rate increasing to 2% up to GBP 250,000 (AED 1.175 million) and then 5% up to GBP 925,000 (AED 4.347 million).
Middle East investors purchasing second homes or buy-to-let properties up to GBP 500,000 (AED 2.36 million) will be subject to a 3% surcharge. From the 1st April 2021, this will increase to 5%, therefore an investor from Dubai purchasing a buy-to-let property in London worth GBP 300,000 (AED 1.14 million) between now and the 31st March would have the potential to save GBP 6,000 (AED28,200).
In the same scenario, a property valued at GBP 700,000 (AED3.29 million) would be subject to stamp duty tax of GBP 21,000 (AED98,700). From 1st April, this will increase to GBP 35,000 (AED 164,500), resulting in a saving of GBP 14,000 (AED 65,000) if bought before the end of stamp duty holiday.
One important thing to note, property purchases must be completed by the 31st March 2021 to qualify for the stamp duty holiday.
Looking at the London property market more generally, it has been resilient despite recent events. Based on market data from Zoopla House Price Index, UK house price inflation in the 12 months to June 2020 edged higher to +2.7%, the highest level of annual growth for almost two years.
The reopening of the UK housing market on the 14th May after restrictions as a result of COVID-19, triggered a flurry of interest from buyers, with the number of visits to the popular property website Rightmove witnessing a 4% increase in visitors compared to the same day in 2019.
As we approach the end of the stamp duty tax holiday, we expect to see an increase in inquiries and transactions from overseas investors as they are prompted to buy to benefit from the respective savings. London’s safe-haven status will compound this, and we, therefore, see various pockets of opportunity for Middle East investors looking to enter the capital’s real estate market.
(All AED figures are based on an exchange rate of 4.7 AED to GBP).
Dennis Chan is Global Head of International Sales at Chestertons, one of the world’s oldest real estate companies based in London.
He has over 15 years’ of experience advising real estate developers, investment funds and private investors around the world on international real estate investments. Dennis has been directly involved in nearly US$1 billion in transactions, with the launch of more than 30 residential developments worldwide.