Tax relief change will ramp up cost of building in poor areas

The withdrawal of relief from stamp duty land tax for associations building or buying homes in disadvantaged areas will ramp up the cost of development.

The change came into effect on 16 March and will catch any deal where contracts had not yet been exchanged. Housing associations will now have to pay up to 4% tax on purchases of more than £500,000. Previously, those buying six or more homes in disadvantaged areas paid no stamp duty land tax.

Electoral wards in almost every local authority in England, Northern Ireland, Scotland and Wales qualified for the relief. Some deals look set to collapse as a result of its withdrawal.

Charlie Proddow, partner at solicitor Devonshires, said: “There was likely to have been a lot of affordable housing being developed in these areas but now developers may not find it so attractive to buy and sell on in these areas.”

Andrew Sneddon, a solicitor at Trowers & Hamlins, said: “Either costs have to be shaved somewhere or it means having to raise more money, possibly by selling more units on the open market.”

Alan Prole, managing director of Paramount Homes, the commercial subsidiary of Home Group, said: “We are talking hundreds of thousands of pounds and that’s the difference between doing and not doing a scheme.”

But he added that the exemption from the tax for properties under £120,000 would make buying a more realistic prospect for a greater number of people. He said: “The rise in the threshold for stamp duty helps on intermediate housing schemes because a lot of our units are for low-to medium-income owners who will now be exempt [from the tax].”