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Stamp of disapproval

Government measures to combat stamp duty avoidance when expensive properties are bought through a company could hit the buy-to-let and institutional investment sectors.

Last week, Chancellor George Osborne announced a 15 per cent stamp duty on homes worth more than £2m that are purchased through a company. The aim is to close the loophole that allows properties owned by companies to avoid stamp duty when sold.

Osborne also set out plans to consult on a “large annual charge” on £2m homes that have already been bought through companies.

There are fears the new measures could have unintended consequences when the European Commission implements its mortgage credit directive, which aims to harmonise mortgage regulation across the EU.

The directive applies strict affordability checks on each transaction involving individual consumers. The proposals currently include buy-to-let transactions, although many are lobbying for these to be excluded.

John Charcol senior technical manager Ray Boulger says: “If buy to let is not excluded from the directive, then the one way UK buyers of a buy-to-let property could avoid the new affordability rules would be to buy through a limited company.

“But this will now not be viable because nobody is going to buy a property through a limited company if they have to pay 15 per cent tax. There could be serious consequences further down the road.”

Buy-to-let lender CHL Mortgages managing director Bob Young agrees the stamp duty will stifle the buy-to-let sector. He says: “If you are going to be paying a huge stamp duty up-front on these sorts of deals, then you have got to factor that in.

“It is another cost for the investor to look at, so it will affect transactions in this area of the market.”

London & Country associate director of communications David Hollingworth believes the relatively low number of transactions at the upper end of the buy-to-let sector mean these changes to the tax system will not be as detrimental as others have predicted.

There are an estimated 74,000 homes in England and Wales worth £2m and over. It is not known how many of these homes are owned by buy-to-let investors.

Hollingworth says: “These changes will damage that part of the buy-to-let sector but there are very few properties valued at £2m or over, so there will only be a specific niche that will be hit by these measures.”

Mortgage for Business managing director David Whittaker says: “I do not think the buy-to-let sector will be hit by these measures because people will invest in property even after the changes have been made.”

The Association of Mortgage Intermediaries says the new tax could slow institutional investment in residential property due to the added costs of operating in the sector.

AMI director Robert Sinclair says: “I believe it will cause people to rethink how they can make this sort of deal work now.”

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