December 3, 2012 / 5:11 PM / 5 years ago

UK luxury home tax may backfire as buyers stay away

LONDON, Dec 3 (Reuters) - The British government could lose 203 million pounds ($325 million) in revenue from home sales as a plan to raise 150 million in taxes from wealthy house buyers backfires, data shows.

Data from the Land Registry showed that UK property sales between 2-5 million pounds fell 30 percent over July-September versus the same period last year as threatened tax hikes on such deals dissuaded buyers. Central London sales fell 9 percent.

The hikes would likely cause similar declines over the rest of the year, resulting in a 203-million-pound loss in tax receipts, property consultancy London Central Portfolio said.

“In a time of recession the government is pretty much killing the goose that’s laying the golden egg,” LCP chief executive Naomi Heaton told Reuters.

“It is too soon to make a definitive judgment on the impact of the 7 percent rate on high value property,” a Treasury spokeswoman told Reuters in an email.

“The latest data show that the long-term trend remains unchanged but price increases in prime areas of London are in double digit figures indicating the continued strength of the high value property market in London.”

In March, the UK’s cash-strapped government said it hoped to raise 150 million pounds in the year to next April by raising stamp duty on properties worth over 2 million pounds. Such properties, most of which are in London, have been highly sought after by overseas investors looking for a safe haven from the global economic turmoil.

The government also launched a consultation process on plans to levy an annual charge on properties worth more than 2 million pounds and extend capital gains tax to include overseas individuals who buy property through companies.

Uncertainty over the consultation’s outcome has led many potential buyers to delay purchases till the picture clears, property agents said. The government hopes to impose the changes from April next year.

UK Chancellor George Osborne will present his half-yearly fiscal statement on Wednesday in which he is expected to defend his stringent economic policies.

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