UK – Changes to stamp duty on commercial property announced in chancellor Gordon Brown’s budget will lead to growth in the property unit trust market according to Tim Bell, director of property at F&C Management in London.
Bell says this is because the units containing the pooled property assets are treated the same way as equities and therefore subject to stamp duty of just 0.5%, not the 4% levied when a building changes ownership directly.
But this is having an overall detrimental effect on the property market, since it affects the levels liquidity in it. “High levels of capital and liquidity are important in the property investment market because money is needed to refurbish and redevelop properties,” he says.
He adds that the current level of 4% is too high for many institutional investors, such as smaller pension funds, to trade realistically in property directly.
Moreover, the chancellor’s move to close the loophole that allows some investors to avoid paying stamp duty altogether will also have a detrimental effect on property investments. The chancellor intends to impose full stamp duty at 4% on property assets held in special purpose vehicles (SPV), which trade as companies and don’t incur stamp charges.
“Effectively the assets in the company are acquired by the investor when they take over the SPV. The chancellor wants to change the set-up, so that any property assets held therein are taxed in the usual way.”
Bell says the government should treat property in the same way as shares. “This is unrealistic really, since the level of income the government can derive form stamp duty at 4% is considerably higher than at 0.5%. But the property investment market is beneficial to the economy and the government should encourage, not discourage, its growth.”