“This” said Chancellor George Osborne, “Is a budget that puts security first. A budget for working people. A plan for Britain for the next five years. A sensible path for the whole nation.
“We don’t build enough or invest enough… so we will be bold in backing the aspirations of working people.”
And he added, “I can confirm that the richest are now paying a bigger share of taxes.” But, the Chancellor still needs to make £37 billion in savings.”
So what are we in for?
Several budget elements directly relate to the property market for property businesses: mortgage interest relief for Buy to Let investors and for homeowners with mortgages; inheritance tax; non-dom status tax arrangements; social housing rents and, for businesses, changes to national insurance, the minimum wage and corporation tax.
Clamping down on offshore taxes
Mr Osborne is planning to ‘go after’ those perpetrating offshore tax fraud, so beware property owners ‘hiding’ their wealth.
The non-dom regime is to be revised, so that from 2017, non-doms will pay inheritance tax on residential property held offshore. Additionally, non doms who have lived in the UK for 15 years will be liable for all taxes – permanent non-dom status will be abolished from 2017. These measures, says the Office for Budget Responsibility, will raise £1.5billion. But will that seriously affect the London property market?
Ed Heaton, Heaton & Partners, said, “London is fast becoming a larger scale Monaco, a playground and an attractive destination for the super-rich. There are arguments for and against whether having such a huge international presence in the city really adds significantly to our economy, but on balance, I do think the super-rich really do add value to the UK as a whole.
“George Osborne needs to ensure that they make a significant enough contribution without taxing them out of the UK altogether. I think the Chancellor has probably struck the right balance today.”
Liam Bailey (left), Global Head of Research at Knight Frank, commented, “On their own, the changes to the non-dom tax rules will not have a profound impact on the prime London market as demand is driven by a number of factors, and non-doms form only a part of demand.
“These reforms follow a series of changes in recent years that make it increasingly difficult to argue that prime residential property is under-taxed. The relatively subdued nature of the prime London market since December’s stamp duty changes highlights the risk of higher taxation on market demand and also Government revenues.”
But the London property market will be hit, says Nick Leeming (right), Chairman, Jackson-Stops & Staff, “It is vital that the capital retains its attraction to non-doms. The stricter rules being applied to non-doms, while having some merit, will inevitably further dampen demand from international buyers in central London where the market for higher valued properties has already slowed sharply following last year’s changes in stamp duty. This will affect the London economy, impacting restaurants, clubs and retail in prime central London.”
However, Dr Anthony Lee, Senior Director at BNP Paribas Real Estate, said, “This move could act to further enhance demand for prime UK residential property as non-domiciled owners seek to take advantage of UK inheritance tax relief, and therefore sell property held abroad and ‘repatriate’ their assets to the UK.”
Tax relief options
Mr Osborne reiterated the Conservatives’ election pledges, the introduction of a Help to Buy ISA, the Right to Buy and fairer taxes – and it now aims “to create a more level playing field for Buy to Let investors and homeowners.” Currently landlord investors may offset mortgage interest against tax, but not homeowners, The Bank of England says this poses a risk to the country’s balance of homeownership and properties to rent – so, “We will act gradually to rebalance the tax paid by homeowners with mortgages and that received by Buy to Let investors – mortgage interest relief will be limited to the basic rate of tax.”
Glynis Frew (left), Managing Director of Hunters Property Group, expressed disappointment, “Despite a phased approach, we were disappointed to hear of the reduction in tax breaks for buy to let investors as this will discourage new landlords from entering the sector and will result in a lack of stock. This will inevitably lead to higher rents as at the end of the day landlords are business people and will need to compensate for this.”
Graham Davidson, MD, Sequre Property Investment, said, “The reduction in tax breaks for landlords will make Buy to Let a much less attractive proposition, ultimately discouraging investment in the sector and reducing the amount of rental stock available, which will push rents up.
“As per Labour’s proposed rental caps and controls, this is another example of politicians not understanding how the market operates, directly contradicting their apparent goals for an improved private rented sector. Landlords should be free to deduct legitimate costs, just like any other business does.”
Rent a Room
The Rent a Room scheme for homeowners has the income limit for tax relief frozen at £4250 per annum, this says the Chancellor, will rise to £7500 per year. Matt Hutchinson, Director of SpareRoom.co.uk, says, “The Chancellor’s change to the Rent A Room scheme has huge implications for the scarce supply of affordable rented accommodation.
“It’s vital we make better use of existing stock and this will do just that. All too often housing initiatives benefit a select few – but this helps millions of renters and homeowners.
“There are an estimated 19 million empty bedrooms in owner-occupied properties in England alone. Freeing up just 5% of those rooms would accommodate almost a million people – the equivalent of a city the size of Birmingham.
“Encouraging people to take in lodgers could help them avoid repossession when interest rates rise and their mortgage repayments are adjusted. Lodger landlords can earn, on average, £8,335 per year in London, and £6,071 across the rest of the UK.”
Inheritance tax on homes
Mr Osborne said that Inheritance tax was designed to be paid by the very rich but now it is hitting ‘ordinary families’ so, from 2017, homeowners will benefit from an additional £175,000 allowance on top of the current £325,000 on the family home. “And from today” he added, those who downsize will not lose out – they will be able to pass on up to £1million without paying any inheritance tax.
Gráinne Gilmore (left), Head of UK Residential Research at Knight Frank, said, “Property trends over the last few decades have led to an amassing of housing wealth among older people. Increasing the Inheritance Tax (IHT) allowance will mean that more of this wealth flows back down the generations rather than into the Treasury coffers. It will give more people the chance to amass a deposit for a new home or make a step up the housing ladder.
“Making an allowance to protect downsizers is welcome. It means those living in large houses do not have to continue to do so in order to benefit from the IHT changes. This, in time, could help release more large homes back into the market.”
Business
Corporation Tax – cut to 19% in 2017 and 18% in 2018 to give businesses a chance to build their businesses.
Social housing rents
In a move that will go a little way to address the imbalance between higher earning tenants and social rents, families earning over £40,000 in London and over £30,000 outside London will have to pay a current market rent on social housing.
This measure is joined by another move on tax credits or support – this will be limited to the first two children, for claims submitted after April 2018.
Text Courtesy of Property Drum