The UK government hit wealthy individuals in yesterday's annual autumn statement as he announced an overhaul of the UK's stamp duty system and non-dom remittance charges.

UK finance minister George Osborne, whose government faces re-election next May, hit the rich in yesterday's Autumn Statement programme of fiscal measures as he announced an overhaul of the UK's stamp duty system and levies imposed on resident non-domiciles in the UK. The moves were seen as significantly reducing the attractions of wealthy foreigners towards seeking residence in the UK.

"The UK remains an attractive jurisdiction for a whole number of reasons but tax is one that is quickly reducing," Matthew Woods, partner at Withers, the global law firm, said. "The UK has long been an attractive and stable jurisdiction for foreign investors.  However, the Autumn Statement, has increased the costs of entry significantly," he said.

Top of the bill yesterday was Osborne's decision to abolish the traditional “slab” stamp duty system and replace it with a progressive charge similar to how income tax is levied.

The move has wrong-footed the opposition Labour Party with regards its proposed "mansion tax" (increasing duties on types of high-value properties) and is likely to cool the housing market in London and the Southeast. "As a result stamp duty will be cut for the 98 per cent of homebuyers who pay it," Osborne said in his speech to parliament.

Buyers had previously paid the percentage above thresholds on the entire purchase price – creating a situation where tax bills rocketed from £2,500 ($4,000) to at least £7,500 when buying a home costing more than £250,000.

Stamp duty bands are now 0 per cent up to £125,000; 2 per cent to £250,000; 5 per cent to £925,000; 10 per cent to £1.5million and 12 per cent above that.

This is great for the average buyer but will hit hard those buying homes worth more than £937,000. For instance, someone purchasing a £1 million home will pay £43,750 instead of £40,000, but someone buying a £2 million home will pay £153,750 rather than the current £100,000 levied just before the 7 per cent threshold kicks in. Previously the bands stood at 1 per cent above £125,000; 3 per cent above £250,000, 4 per cent above £500,000; 5 per cent above £1 million and 7 per cent above £2 million.

Criticism
Already the proposals have been heavily criticised, with some opposers dubbing the change a mansion tax in everything but name.

Estate agent Knight Frank warned that sales at the high end of the market will fall, as will the amount of tax taken in.

"Removing the slab structure of the current form of stamp duty will remove distortions in the market. There will be less bunching of values below the different thresholds. However, the new higher rates of stamp duty at the top of the market could act to reduce transaction volumes here and actually lower overall tax take more than currently forecast. Over the last year alone transactions of £1 million-plus homes have accounted for nearly 30 per cent of all stamp duty revenue,” Liam Bailey, global head of research at Knight Frank, said.

The government is expecting to take a hit to its stamp duty receipts as a result of the measure, Bailey continued. Last year it collected £6.4 billion in stamp duty on house sales, but this year it expects to receive nearly £400 million less. Next year it expects receipts will reduce by £760 million and £840 million in 2016-17.

Unsurprisingly London-focused estate agent Foxtons' share price slid 6.3 per cent while shares in Persimmon - the UK's biggest housebuilder - rose 2.7 per cent as investors appear to believe that the changes in stamp duty will increase demand for homes at the lower end of the market.

"Even before the stamp duty announcement, home prices in London’s most prime residential areas fell 0.2 per cent in November versus the previous month, the first time in four years. The Autumn Statement will likely exacerbate that trend. An early indicator of market reaction is the share price for Foxtons, a house broker that deals mostly in London and the Southeast, fell over 3 per cent following the Autumn Statement,” said  Mouhammed Choukeir, chief investment officer at Kleinwort Benson.

Meanwhile wealthy non-doms were also on the receiving end of Osborne's Autumn Statement as he revealed plans to increase their remittance charges.

Remittance basis charges are applied when individuals pay UK tax on their income and capital gains earning here, and any foreign income and capital gains they "remit" back to the UK.

For those who have been UK resident for seven out of the past nine years, the charge will remain at £30,000; but for people who have been a UK resident for 12 out of the past 14 years, it will increase from £50,000 to £60,000. And a new charge of £90,000 will be introduced for people who have been a UK resident for 17 of the last 20 years.

Roy Maugham, tax partner at UHY Hacker Young, said the increases will result in fewer non-domiciles claiming the remittance basis of assessment and instead opting to be taxed on their world wide income.

“These are the latest in a line of initiatives that have hit wealthy international business people living in the UK. “The new £90,000 charge for those who have been based here for 17 of the last 20 years is quite punitive. We could see individuals leaving for good who have made a significant contribution to the UK economy over the years, often investing heavily or helping to build British businesses," Maugham said.

"That loss would outweigh the benefits of the additional £120 million it is expected to bring in its first year. We need to encourage talent to the UK, and successful investors and entrepreneurs with strong links to other countries bring huge benefits to our economy.  If we squeeze too hard we risk driving them away," he added.