George Osborne, the Chancellor of the Exchequer, has today delivered his 2016 Budget with mixed news for the UK property market. Initial impression seems to be that the changes could have been worse but as ever the devil is in the detailed which will emerge at a later date. So, in bullet point format how will the UK property market be impacted by today’s news?
Stamp duty
Despite hopes that the Chancellor would backtrack on his earlier plans to increase stamp duty on the purchase of second homes/buy to let properties in the UK these hopes were quashed today. A 3% stamp duty surcharge will come into effect from 1 April 2016. It was also confirmed that larger investors, a key element of the UK property market, will not be exempt from this surcharge. As a consequence this will have an impact upon the UK buy to let market as a whole.
Help to buy
The UK government has released a number of policies over the last few years with the intention of helping first-time buys onto the property ladder. Funds generated from the additional stamp duty income, see above, will be used to fund an array of housing schemes across the UK. Community land trusts will receive additional funding with £20 million going towards young families struggling to buy their first property in the south-west of England.
While any assistance for first-time buyers will be gratefully accepted there are concerns that additional finance going towards first-time buyers will deflect from the ongoing Build to Rent industry. Will this reduce the attractions for institutional investors looking at the Private Rented Sector?
Tax breaks for entrepreneurs
While there is little in the way of detail, the Chancellor also highlighted a new £1000 tax break for “micro-entrepreneurs” which would appear to be centred round short-term lets. Further details will emerge once the full budget document has been released.
Stamp duty on commercial properties
In what many see as a long overdue change to the system, the Chancellor has reformed commercial stamp duty rates with the new system coming into play at midnight tonight. Those acquiring commercial property with a value of up to £150,000 will pay 0%, there will be a charge of 2% on the next £100,000 and 5% above £250,000. It is estimated that 90% of small firms will benefit from this change although those at the higher end of the market seem to have been targeted.
Lifetime ISA
The government has often shown interest in using the ISA investment vehicle as a means of funding property purchases for first-time buyers. As a consequence it is perhaps no surprise to learn of the introduction of a Lifetime ISA available to those under 40 years of age. The government will give savers an additional 1 pound for each 4 pound they save with a maximum investment of £4000 each year until they reach 50 years of age.
Capital gains tax allowance
From 6 April 2016 the capital gains tax allowance for higher rate taxpayers will fall from 28% down to 20%. There will also be a reduction for basic rate taxpayers from 18% to 10% in a move which will be well received by investors in general. However, landlords will be disappointed to learn that future gains on residential property will not be included in the new capital gains tax regime and will instead be taxed at the current rate.
Mortgage interest tax relief
While George Osborne confirmed that limited companies would not be exempt from the additional 3% increase in stamp duty for buy to let properties there is still one ray of sunshine in the shape of mortgage interest tax relief. Despite the fact that mortgage interest tax relief will be phased out for individuals, limited companies will still be able to offset mortgage interest against their tax bill as a business expense. It is unlikely that George Osborne will be able to tinker with property related mortgage interest tax relief within limited companies as this is a justifiable business expense. Quite why individuals are not able to offset mortgage interest is controversial in itself.