April 2016 has brought two things: rain showers and a stamp duty rise on second (or more) properties. In fact, the Chancellor’s March Budget has marked significant changes for the property market as a whole so let’s recap what homebuyers and landlords can expect of the year ahead.
Coming into effect this month, property that is not intended as the buyer’s primary residence will incur additional three per cent tax. First announced early last year, landlords and those planning a second residence have been given plenty of time to buy before the rise. Any buyers or landlords who had been hoping that this wouldn’t actually happen will have been disappointed, while investors on a grand scale (purchasing 15 or more properties at a time) will have been bitterly disappointed that March’s Budget also included a repeal of their planned exemption.
Commercial properties didn’t escape the reforms either. Now, instead of paying Stamp Duty on the whole amount, buyers can expect to pay duty only the amount that falls into the following bands: zero up to the value of £150,000, two per cent on the value between £150,001 and £250,000 and five per cent on the portion of the value that is more than £250,001. The Treasury asserts that buyers of commercial property worth £1m will pay less Stamp Duty in the move and it hopes to raise £2.59bn by 2020 from the changes.
Capital Gains Tax
Property sellers didn’t escape the Budget either, though only those selling commercial property could breathe a sigh of relief. Their tax rates fell from 18 per cent to 10 per cent at the lower level and from 28 per cent to 20 per cent at the higher rate (based on individual income tax rates). Residential property sellers (though not home owners selling their own residence) will still face tax on the profits of a sale. This is possibly a tactic to stop direct property investors (not those who have invested through a trust) and landlords selling to avoid paying tax on monthly mortgage interest repayments after the relief was removed in last year’s ‘Emergency Budget’. This is something the Bank of England felt could flood the market and bring property values down leading to negative equity cycles.
A touchy subject for some in light of the current Panama Papers fallout, but less than a month ago the Chancellor was making it his mission to identify property developers (and large corporations) not paying UK tax on profits made in the UK. An HMRC taskforce was set up to identify so-called high risk developments, that is offshore developers whose tax status looks suspicious and intervene to prevent them from shipping the profits to tax havens abroad. It’s not saying that business can’t profit from the UK’s economy, it’s just that it has to contribute to it in the process; a move that is hoped will raise more than £2.28bn for the Treasury.
The housing shortage
This has been a significant worry for government with the Bank of England and consumer groups saying that first-time buyers are being priced out of the market by the lack of housing stock and rising property values. The Office of National Statistics’ April figures show there are 2.2 million people aged between 20 and 30 currently renting in the UK. This is against a backdrop of Halifax mortgage figures for April that show UK house price growth has hit a year and a half’s high of 10.1 per cent with an average house price of £214,811. Even this figure shows a rise of 2.6 per cent from last month suggesting that buy-to-let landlords and second home buyers were rushing to avoid the Stamp Duty rise this month.
With this in mind the Budget proposed greater ‘planning freedoms’ for local councils to build new homes, especially to create suburban ‘garden villages’, and amend laws making it easier for councils to take ownership of property and land that could be better served with housing stock. Whether this will make housing more affordable or whether the 2.2 million 20-30-year-olds currently renting in the UK actually want to buy, remains to be seen.
If you would like expert advice in navigating the current property market, get in touch with the Property Divas team today who will be happy to help.