Milan Khatri, chief economist at Aberdeen Property Investors outlines the implications of the UK’s latest Budget announcement.
The property industry will be relieved that the announced increase in the stamp duty land tax (SDLT) rate will only apply to residential property. The change will help to finance a temporary rise in the nil rate threshold for first-time buyer purchases of residential property to the value of GBP 250,000 for two years.
The SDLT rate will rise from 4% to 5% for residential transactions over the value of GBP 1 million from 6 April 2011 while for commercial property the rate has been left unchanged at 4%.
For transactions over the GBP 1 million threshold, the commercial property market is significantly more important, and the move on residential property will create uncertainty regarding potential harmonisation of tax rates in the post-election period.
A tax rise on the commercial sector would risk hurting the value of UK pension funds which are big holders of property. Moreover, the UK banking industry, which is still recovering from the global financial crisis, has a large exposure to commercial real estate assets and would be vulnerable to a set-back in values should taxes rise.