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Categorized | Property

Treasury eyes penalties for empty homes

Posted on February 28, 2014

The Treasruy is looking at the best way to tax high-end London property©Bloomberg

The Treasruy is looking at the best way to tax high-end London property

Danny Alexander, the Treasury chief secretary s looking to target property investors who buy expensive homes only to leave them empty.

The move comes as the coalition tries to put itself on the side of ordinary families struggling to find a home.

With the Budget only weeks away, ministers are again grappling with questions on the best way to tax high-end property in London, which continues to attract international investors despite repeated tax rises in the sector.

The Treasury’s focus this year has moved to the so-called ghost mansions or uninhabited upmarket flats scattered across London’s most desirable boroughs, bought by investors but then left empty.

“From a social policy point of view we are worried about all of these people buying houses and leaving them empty when thousands of families don’t have anywhere to live,” said one official close to the Liberal Democrat chief secretary.

In The Bishops Avenue, Hampstead, some homes have been left to rot and have been taken over by wildlife. An investigation by the Evening Standard newspaper found more than 700 empty expensive homes, worth a total of £3bn, from Wimbledon and Richmond through Kensington and Chelsea to Hampstead.

Treasury officials are looking at the taxation of such empty homes and why some councils seem reluctant to use their power to charge 150 per cent of council tax on homes that have been empty for at least two years.

Boris Johnson, Tory mayor of London, has urged other boroughs to follow Camden council in applying the 150 per cent rate.

Andrew Frost, lead director of UK residential at Jones Lang LaSalle estate agents, said: “Large London houses in Mayfair and Belgravia have for decades been pied-à-terres, not always occupied. But encouraging occupation of those homes is not going to solve London’s housing crisis.”

An oligarch’s guide

An oligarch's guide

    The Treasury has increased taxes on high-end property transactions by hundreds of millions of pounds over the past few years, mostly recently by the 2012 introduction of higher stamp duty land tax rates and the annual charge for “enveloped” property held in a corporate structure. Last year, it announced the imposition of capital gains tax on foreign-owned property which is set to bring in £125m over the next five years.

    However, the new taxes have so far brought in nearly five times the sum the government expected. By December last year, the annual tax on enveloped properties had collected £92m, while the stamp duty land tax on such properties brought in £70m in 2012-13.

    Just 1,100 people who owned properties through offshore companies were initially expected by the Treasury to pay the annual tax, which ranges from £15,000 to £140,000 a year depending on the value of the property. Together with the new 15 per cent top rate of stamp duty, it was originally expected to bring in £35m a year.

    The Treasury believes it is too soon to draw conclusions about why revenues exceeded expectations, which could be explained by enveloping being more widespread than initially thought, a higher than expected proportion of properties being in higher price bands or fewer properties than expected being taken out of corporate ownership structures.

    Advisers said a large proportion of property owners had decided against “de-enveloping” their properties. Some wanted to preserve their anonymity but for many the biggest factor in their decision was wanting to avoid triggering a capital gains tax charge, 28 per cent of the gain, when they removed the property from the structure.

    Inheritance tax planning was another important consideration for many older non-residents and “non doms” – wealthy foreigners living in Britain who keep their foreign income outside the UK tax net. Removing a property from its corporate envelope exposes it to inheritance tax.

    In depth

    UK house prices

    For sale signs uk

    Price indices have presented wildly contrasting pictures of the health of the housing market – according to some the boom is back, while to others the slump staggers on

    Ros Rowe, head of property tax at PwC, the professional services firm, said it would not be surprising if the Treasury considered raising extra tax on enveloped property. “You can see the government might look at this and say, maybe you could squeeze a bit more.”

    Even with the charge, the annual ownership costs for a £2m home in the UK mirror those in the US, according to research by agent Knight Frank.

    Lucian Cook, director of residential research at agent Savills, said the introduction of stamp duty on enveloped property had hit the price of London’s most expensive homes. “It certainly has tempered the price rises and taken some heat out of the market,” he said. “Any further increase in rates would undoubtedly have an effect.”

    Average house price growth in London’s prime boroughs has been overtaken by that of less well-heeled areas in the past year. Land Registry figures released on Friday showed that the biggest price rises in the past year have been in Hackney, Wandsworth and Waltham Forest. Prices in all three areas grew more than 17 per cent year on year. By contrast, prices in Kensington and Chelsea grew 11 per cent.