The UK government has been accused of prioritising “wealthy foreign investors” over fixing Britain’s housing crisis after it watered down a new property tax on overseas buyers.
In little-noticed official documents published last week, the Treasury confirmed a planned stamp duty premium for non-resident buyers will be levied at a 2% rate.
But the Conservatives had promised a 3% ‘surcharge’ as recently as November to limit competition for domestic buyers in England and Northern Ireland.
Tim Farron, the Liberal Democrats’ housing spokesperson, told Yahoo Finance UK the change of stance showed the government was more concerned with “protecting wealthy foreign investors” than providing affordable housing. “It's clear that this government have got their priorities all wrong.”
The MP and former party leader said local authorities needed more funding to tackle the housing crisis, and should be empowered to set the levy themselves according to local needs.
He added: “This choice on the part of the Conservatives risks leaving millions less in funding for efforts to end rough sleeping in the UK today.”
Now-chancellor Rishi Sunak had warned last year that overseas purchases “inflate prices,” and the party said the new tax would raise up to £120m ($154m) a year ring-fenced for rough sleeping support.
But analysis of official figures by Yahoo Finance UK also suggests it may raise less than hoped for tackling homelessness. The Treasury expects the net impact of the levy to be only a £105m annual boost to government coffers from 2023 onwards.
A rush to buy is expected before the surcharge begins next April, followed by a collapse in overseas purchases next year after its introduction. This will leave a £355m dent in the government’s total tax take, according to data released alongside the 2020 Budget.
Over the next five years as a whole, the Treasury expects a net boost of just £28m a year, which could reflect not only low surcharge income but also a drop in total stamp duty or other tax income.
The UK government has already come under fire for allowing anyone buying additional and buy-to-let property to benefit from its recently announced stamp duty holiday this year.
It means overseas buyers, like anyone else purchasing until next April, will avoid the standard 2% levy on a property’s value between £125,000 and £500,000.
Additional home and buy-to-let investors still face a separate 3% surcharge, but the buy-to-let lender Skipton International reported an immediate rise in demand from foreign nationals after the holiday announcement.
Yahoo Finance UK reported fears last week that the watering down of the tax also risked undermining efforts to tackle flows of dirty money into Britain’s property sector from abroad.
A financial crime lawyer warned it could make Britain “more attractive” for money laundering.
The issue has been thrown into the spotlight by a report accusing UK governments of “welcoming oligarchs with open arms.” It also highlighted the role of UK “enablers” in the property, legal and accountancy sectors in recycling illicit Russian money.
A Treasury spokesperson said: “The UK welcomes legitimate, ethical and honest investment from around the globe.
“The 2% surcharge strikes the right balance between making it easier for people to buy their first home and keeping our economy attractive enough for inward investment.”
The official documents confirming the plans last week also highlighted concerns over the surcharge among professional firms, developers, estate agents and others. Some respondents to the government’s consultation warned it would “negatively impact housing supply and affect the UK’s reputation as a destination for international investment.”