Stamping out Incentives
From Budget day, 22 March this year, anyone paying over £2 million for a house has had to pay 7 per cent in stamp duty up from 5 per cent and equating to £140,000 payable alongside the purchase price. The rate will be applied much more frequently in London, where in some postcodes 1 in 10 homes fall into this price bracket. North of the Border, 2011 saw just 14 homes sell at £2m plus according to Savills research.
But that isn't to say that the change in taxes won't have an effect on the upper end of Scottish home sales. John Boyle, of Rettie & Co says that it is a resilient area of the market.
"Although we did see falls in this type of property in both price and transaction levels after 2008, recently it has flattened, even been up a little bit. It has always been thin, with few buyers and sellers, but these trophy properties are usually unique, prestigious homes which the very wealthy want despite price fluctuations."
Boyle says that the main effect of the change in stamp duty is on pricing. "What you will see is sellers choosing to price their properties just under the £2m mark, or going for a starting price well over that, to make it worthwhile paying the duty of upwards of £140,000."
Rettie & Co recently handled the sale of a full townhouse in Ann Street, Edinburgh which had been priced well over £2m with another agent. Marketed at £1.95m, it sold within days.
Peter Lyell of Savills says that few if any properties have yet been sold in Scotland above £2m in the time that the higher stamp duty has applied, but agrees that prices are even more likely to stay firmly below the threshold, or quite a bit above it. "It happens at the other thresholds - you are likely to get properties selling at £495,000 or £520,000, but not £505,000 because the buyer, by paying £5,000 over the threshold, also has to pay 4 per sent instead of 3 per cent in stamp duty." He believes that a sliding scale of stamp duty would prevent these blips.
Such a measure would also discourage part of the transaction being hidden from the taxman to avoid the higher stamp duty rate, either by claiming a proportion is for moveables such as carpets and curtains, or by paying the extra in cash. The latter is highly illegal, while any amount over a few thousand, even for very expensive fittings, is likely to raise the attention of tax inspectors and not be advised unless absolutely genuine.
Despite the stamp duty rise, there are still buyers looking in Scotland with a budget well over £2m, according to Lyell. "In rural areas to merit such a price tag they are usually beautiful historic homes with outbuildings, cottages, acreage. But in Edinburgh a typical £2m house will be a full townhouse in one of the better streets, five storeys with a self-contained flat in the basement, parking and a garden, which has been well looked after."
In London, where a similar townhouse in, say, St John's Wood will cost more like £40m, stamp duty seems less of an issue, but at the £2m mark there is a similar marked jump in asking prices from just below, to well above.
Simon Rettie points to another effect higher stamp duty has on buyers in the UK "If you are spending this amount of money, and in addition will have to pay a non-recoverable tax of £140,000, buyers have to be absolutely sure that they are buying the right house.
With 0 per cent inflation, spending that on top of the purchase price means a buyer has to really want to live there for a considerable number of years, because they perceive that they are unlikely to recover that amount in house price rises."
He says that outside of Aberdeen which is the only area of Scotland where the million-plus market has continued to grow, a rural property with a £2m price tag is likely to be important historically and architecturally, have the privacy afforded by isolation but still be in a central position making commuting to the city or airports both feasible and convenient.
"People like features such as separate staff accommodation, stabling and swimming pools but all of these can be added later. Most of all it is exclusivity that attracts buyers. Some of these most expensive properties in Scotland have never been on the market before so there is a feeling that this is the one and only chance to buy a unique home."
As published in the Scotsman, 24th May 2012
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