Chancellor Gordon Brown could take an extra £1bn from the property industry in the Budget on 17 April, top economists have warned.
UK Property Focus, published by consultant Capital Economics and edited by Roger Bootle and Sabina Kalyan, said that Brown could raise stamp duty to 5% and close some of the loopholes by which the duty can be avoided.
Capital Economics predicts that Brown will not raise stamp duty but that he will target stamp duty avoidance schemes.
Half of the most valuable commercial property deals in 2000/2001 – worth around £8bn – were restructured as special purpose vehicles (SPVs) to avoid stamp duty, according to Insignia Richard Ellis.
Closing loopholes would effectively raise the duty on these schemes from 0.5% to 4%, costing the property industry an extra £320m pa.
UK Property Focus said that SPVs have offset stamp duty rises’ impact on the industry, while “the Government has tacitly condoned what is effectively a two-tier system.”
Closing the loopholes would also increase transaction costs, hitting private debt-backed investors by removing “the all-important gap between borrowing costs and the yields that they rely on.”
UK Property Focus adds: “Ideally, the government should decouple the rates of duty on residential and commercial property and charge a zero rate on the latter.”
The Government is looking into separating residential and commercial property for tax purposes, but analysts do not expect it to introduce a zero rate on commercial property.
Stamp duty on commercial property deals raised £1.652bn last year – a figure that could rise to £2bn if loopholes were closed.
EGi News 03/04/02
