The biggest issue facing the private rented sector is the need to increase supply in order to provide tenants with a greater choice of better quality accommodation that remains affordable.

The recent report by the Joseph Rowntree Foundation 'Housing Options for Young People in 2020' identified the implications of failing to do so. It also identified the need to provide financial carrots, including tax incentives, as opposed to regulatory sticks to increase the supply of stable, long-term rental accommodation.

Though the prime and mainstream markets are in many ways poles apart, the impact of the taxation is equally important in the prime markets of Central London.

Within the prime markets, changes to the stamp duty regime have increased the barriers to potential investors in the Central London market, given both an increase in the ‘standard’ rate of stamp duty for properties purchased for in excess of £2 million and the ‘higher’ 15% rate of stamp duty applicable to purchases by so called ‘non-natural persons’.

In its current form the higher rate of stamp duty would put investment funds and some of London’s Landed estates at a disadvantage to the rest of the market, whilst the proposed annual charge would impinge on net income yields that are critical to the investment credentials in this sector.

The recently published Treasury consultation paper “Ensuring the fair taxation of residential property transactions” opens the door for additions to the exemptions to those charges.

It is essential that such amendments are made to ensure that the measures are, as intended, “more precisely targeted at those circumstances where tax avoidance may be a significant factor”, particularly where “assets are held for personal use despite being held within a corporate envelope”.

The amendments are also crucial to ensuring demand from overseas tenants employed in the financial sector of the economy is met within Central London.

Accordingly, as the deadline of the 23rd August looms, we expect that those affected will be concentrating their efforts on finding ways in which they can be excluded from the provisions without leaving opportunities for ongoing tax avoidance.

Taken from
Spotlight: Prime Rental Markets Q2 2012