From July, property investments in the UK will carry a 4 per cent rate of stamp duty. Will this slow Irish investment in the UK market? No, say the experts, who are predicting a record €2bn of Irish purchases in the UK market in 2004
Changes in the UK tax system that will see a new 4 per cent levy on property purchases are unlikely to have any impact on Irish investment in Britain.
Property specialists continue to predict Irish purchases on the UK market will top €2bn during 2004.
"I don't think it will have an impact on Irish investment," said John Moran, director of capital markets at Jones Lang LaSalle.
"I think it is more an issue for the big UK players than the Irish investor."
The imposition of the new tax is causing consternation in the UK where large property funds have begun fleeing from Britain to Jersey to avoid the new tax rules.
The changes relate to limited liability partnership (LLP) purchases. An estimated £17bn of UK property is owned by LLPs, vehicles used in part because they did not attract stamp duty - until now.
From July, LLP investments will carry a 4 per cent stamp duty. As a result, large UK funds - such as Morley Fund Management, Legal and General and Aberdeen Property Investors - are all looking to move ownership of LLPs to Jersey or other tax havens.
The British Property Federation is lobbying to block the move. It wants LLPs held for property purposes to be treated as unit trusts or company shares, where the sale of shares is taxed at just 0.5 per cent.
Mr Moran does not believe the change will slow Irish investment in the UK, citing a number of reasons. The 4 per cent still represents very good value when compared to the 9 per cent applied here, he said. The UK also has a much higher level of product available compared to the Republic.
"Also there are large swathes of the UK that are stamp duty free anyway." The entire centre of Manchester being an example.
"Disadvantaged areas" have been designated across Britain and these remain free of stamp duty.
Andrew Gunne, involved in international investment with CB Richard Ellis Gunne, concurs: "The stamp duty rate is less than half of what investment in Ireland costs," he said. He also argues that, in any case, the 4 per cent charge when applied over the life of the investment "doesn't make a massive difference".
The range of property an investor could purchase in central London and then offer to a tenant was "obviously superior to what you could offer in Dublin", given the scale and availability.
As a result, there will always be demand from Ireland for property in Britain regardless of the stamp duty issue.
The LLP route and similar "special purpose vehicles" (SPVs) for investment are the preferred option for many Irish investors, he said.
"We know for a fact that some purchasers will only look for SPVs or LLPs or tax-exempt areas, and others that will only invest directly," Mr Gunne said.
There were no specific numbers indicating the balance between the two, but preferences varied depending on an investor's individual tax situation, level of investment and the nature of the property being purchased.
Many vehicles were devised only to take advantage of tax loopholes, as in the case of the LLP gap being plugged by Britain's Inland Revenue.
"You can be guaranteed that when one loophole closes, another will open," Mr Gunne added.
Clearly, large UK funds have already identified that loophole and are moving ownership of LLPs offshore.
Mr Moran remains confident that Irish investment in Britain will remain strong. "Big deals are being done, big deals are being closed," he said.
Given the scale of some of the transactions underway these "build volume fairly quickly", he adds. "We are forecasting €2bn for 2004," with the possibility that this new high might also be exceeded, despite changes in UK taxation regulations.
