Taxation - Stamp duty rise would hit prices

A rise in stamp duty would wipe billions off commercial property prices, and have a devastating effect on a range of financial services, property tax experts warned this week.

With stamp duty levels of 10% in France, Belgium and Portugal, there are fears that moves towards European tax harmonisation could persuade the government to raise duty from its current level of 3%.

New research carried out by the London Business School and Arthur Andersen warns that just a 1% rise in stamp duty would wipe #26bn off commercial property values. Companies, especially small and medium-sized businesses, would not be able to afford existing property prices and could threaten their ability to secure loans.

John Cullinane, head of Arthur Andersen’s finance and real estate tax group, said the government could use tax harmonisation talk as an excuse to push up stamp duty.

‘It may well use higher European rates as an argument for why the UK market could pay more,’ he said.

Jones Lang Wootten Finance managing director Rupert Clarke said higher stamp duty could change the UK property market beyond recognition – forcing companies to create single-purpose vehicles that own property. Shares rather than properties themselves would then trade. ‘That would be one logical step,’ said Clarke.

Cullinane warned the implications would be wider. Higher stamp duty and increased Inland Revenue vigilance in closing loopholes could also threaten the ability of companies offering cheap credit cards to stop using the duty-free securitisation deals that keep costs down. ‘It would kill the market,’ he said.