Doubling down on previous promises to reform the housing market, Tuesday saw Shadow Chancellor Rachel Reeves announce Labour’s plan to build 1.5m new homes over the next five years – funded through stamp duty reforms – with the overarching goal being to make 70% of British households homeowners.
However, David Hannah, Group Chairman of Cornerstone Tax – the UK’s leading stamp duty experts – explains that increasing the stamp duty surcharge for foreign nationals could actually have disastrous consequences for the property market.
Holding to their “iron-clad” fiscal rules, Reeves also announced that the construction of these new homes will be primarily funded through reforms to stamp duty, increasing the rate for overseas buyers. As things currently stand, overseas buyers pay a 2% surcharge on UK property, and a further 5% if said property will not be their main home.
These policies mark a shift towards a fiscally interventionist approach to the housing market within the party, further signified by Keir Starmer’s proposed tax on private developers to fund new social housing.
The news comes at a time when the UK housing market faces an overwhelming supply and demand imbalance, with the National Housing Federation estimating that at least 340,000 new homes must be built each year to meet the current demand.
However, Hannah asserts that by raising the stamp duty surcharge for overseas buyers, developers will be put off building new homes for fears of a squeezed market when trying to sell them. This could have an adverse effect on the housing market, and wider economy, at a time when activity is needed to keep both afloat.
Group Chairman of Cornerstone Tax, David Hannah said, “Raising the non-residents surcharge past the current rate would be extremely problematic in the current climate, it can only lead to a collapse in house building by private developers and further increase unemployment.
“If a potential Starmer government were to do this, they would absolutely need to extend the current exemptions beyond Crown Employees as the surcharge is hitting unintended targets including, overseas charity workers and UN staff.
Whilst the intention to make more of Britain’s households homeowners is clearly a good one, there must be careful thought put into how any government would achieve this, rather than increasing a blanket charge for all overseas residents on stamp duty.”