Chancellor Philip Hammond delivered his first Budget this week pledging extra funding for the NHS, transport in the Midlands and the North, maintenance of existing schools, among a host of other measures, while also unveiling forecasts for higher growth and lower borrowing, and reminding us that the UK’s deficit remains high and productivity low.
But despite pressure from the property industry, including landlords, housebuilders, as well as estate and letting agents, to reverse some deeply unpopular tax reforms introduced by the previous Chancellor George Osborne, Hammond failed to even give housing a mention, which was simply bizarre.
The only real good news is the fact that Hammond did not introduce any new property taxes in his Budget statement.
But the hike in National Insurance for the self-employed announced by the Chancellor will not please many property investors - expected to affect around 20% of landlords - and self-employed agents, while changes to corporation tax and dividend allowance, will both provide a boost and prove frustrating for those looking to incorporate their buy-to-let property portfolio.
Ultimately, key industry figures believe that the Spring Budget was a missed opportunity to bolster activity in the housing market, which has slowed in many areas, owed in part to the previous Chancellor’s tax changes.
Mortgage interest relief, inheritance tax, letting agent fees, VAT on renovations, fresh schemes for first-time homebuyers and existing homeowners, and of course stamp duty reform, were all among the major issues that property professionals, including estate and letting agents, highlighted as priorities that needed to be addressed ahead of the Budget statement.
However, they were all concerns that Hammond, albeit not surprising, chose to ignore. After all, the government had already failed to propose the radical step-change the ‘broken’ housing market needs when it published its long-awaited housing white paper in February.
So despite the many protests, campaigns and voices of discontent, we are now left with the draconian policies announced in previous Budget speeches that will adversely affect many homeowners, especially buy-to-let investors, as well as agents.
New measures coming into play in April 2017:
Buy-to-let tax changes
The current rules that allow landlords to offset all of their mortgage interest against tax will, from next month, be phased out over the next three years until 2020/21.
Once mortgage interest relief has been withdrawn altogether, the consequences of Section 24 will mean that landlords will only be able to claim back a basic tax rate deduction of 20% off their tax bill.
From April, corporation tax will fall to 19%, the lowest rate in the G20, which will please buy-to-let landlords who are looking to overcome recent government interventions in the market by acquiring property via limited companies. What’s more, the tax will fall further to 17% in 2020.
The Chancellor opted to reduce the tax free dividend allowance from £5,000 to £2,000 from April next year.
Inheritance tax reforms
From next month, the government will introduce a new Transferable Main Residence Allowance to assist people wishing to pass on property to their descendants.
Initially this will be set at £100,000, increasing to £175,000 by 2020/21. When added to the Inheritance tax threshold of £325,000, it will permit individuals to pass on £425,000 with no tax payable - or £850,000 per couple.
By 2021, the tax-free limit will be £500,000 each, or £1m for married or civil partners - anything above this will incur tax at 40%.
Spring Budget reaction round-up:
Glynis Frew, chief executive of Hunters, said: “We are disappointed to see tax relief for landlords is still due to be cut next month. The buy-to-let market has already seen a substantial hit from the second home stamp duty levy and this further strain on landlords will undoubtedly adversely affect the property market.
“This could mean landlords opting to come out of the PRS, creating reduced supply or increased costs which could again mean an increase in rents. The more average rents rise, the more ownership figures fall.
This is a bad decision which will affect not only landlords but renters, first-time buyers and second steppers.”
Edward Heaton, founder, Heaton & Partners, commented: “I would have loved to see the Chancellor get rid of the 3% surcharge for second homes and reduce the overall stamp duty rate for high-end properties by making it a flat rate, but sadly I think this is a pipe dream of those operating in the prime market, who are witnessing it continue to be stifled by stamp duty. What the Chancellor doesn’t seem to realise is the profound effect that it is having on the rest of the market.”
Robert Fraser, Managing Director, Fraser & Co, remarked: “The impact of this counter-productive [stamp duty] tax arrangement is being felt at every level of the market, from international investors, to downsizers and first-time buyers, where prices at the higher end are faltering and competition at the lower end of the market is intensified.”
Richard Lambert, chief executive officer, National Landlords Association, stated: “The Chancellor has passed up his last opportunity to reverse the plans to restrict mortgage interest relief for landlords, or even to act on suggestions as to how he might ease the impact. Sadly, he still seems convinced by the Treasury’s analysis of the consequences, and it looks like he will only change his mind when the reality proves different.”
Trevor Abrahmsohn, managing director at Glentree Estates, said: “There was a golden opportunity to do something about the higher rate of stamp duty which was conspicuously missed and let’s hope and pray he is storing up some reforms for the autumn.
“There was no reference to extending the scope of Help-to-Buy and Right-to-Buy, or in fact, anything to assist housebuilding across the UK, which will be woefully inadequate to meet the needs of the growing population of this country.
Less than 125,000 new homes will be built this year and yet we require more than double this, to satisfy demand.”
Doug Crawford, CEO of My Home Move, commented: “The bold statement made a month ago that Britain’s housing market is broken, has been side-stepped.”
“What we need is a property market that works for every kind of buyer including the government’s ‘ordinary working families’. By putting the brakes on the buy-to-let sector all the government has done is caused a problem further along the housing chain,” he added.
David Hannah, principal consultant, Cornerstone Tax, responded: “With real estate representing 21% of the UK economy, it is a mystery as to why the government persists in hindering a crucial sector, by creating an unnecessary [tax] burden on tenants, landlords and homeowners.
“The ‘double blow’ effect wiping out the buy-to-let economy, namely the restricted mortgage interest relief for landlords from April 2017 to the basic rate of income tax [20%], and the 3% SDLT surcharge on additional properties, certainly doesn’t chime with the current socio-economic needs of the UK.”
Paul Smith, CEO of haart, commented: “The Housing Minister merry-go-round has left housing issues at the periphery of government thinking and strategy.
Continually kept at an arm’s length, they’re incapable of tackling the deeper seated issues within housing market – leading to a plethora of initiatives that tamper with rather than tactically reform the market.”
John Morley, managing director, JOHNS&CO, said: “The government has once again ignored the views and appeals made by the industry to reverse this counter-productive tax arrangement, which will come as a disappointment to many. Stamp duty hikes have affected the entire market, both on an international and domestic level, slowing transactions and causing many potential purchasers to put off moving altogether due to the significant costs that come with buying a new property.”
Michelle Niziol, Independent Property Solutions, said: “More affordable homes are needed in the areas where people want to live and work.
The Chancellor should have used the Budget to announce new measures to speed up housebuilding and cut planning red tape, as well as announce changes to the stamp duty tax system.”
Henry Smith, CEO, Aitch Group, remarked: “Another golden opportunity to address the ‘elephant in the room’ has gone amiss. The government has yet again chosen to ignore the effects of a stamp duty levy which is damaging the UK property market, as well as reducing the government’s own tax takings.
Lower receipts, reduced transaction volumes and a slower rate of housebuilding have come to define a policy that prevents the housing industry from performing its role effectively.”
Russell Quirk, founder eMoov, remarked: “A bitterly disappointing, lacklustre Budget by Mr Hammond in terms of addressing the current UK housing crisis.
It is clear he is continuing the head in the sand approach of those before him in bypassing the issue, with a few headline-grabbing business initiatives and the usual proclamations about how great the economy is currently performing.”
Richie Tramontana, Red Property Partnership, said: “Many [prospective buy-to-let landlords] have been deterred from investing, and the looming ban on letting agent fees to tenants is likely to lead to another charge being pushed towards landlords.”
Robin Paterson, CEO of United Kingdom Sotheby’s International Realty, commented: “After countless calls from the industry for stamp duty reform, I am disappointed to see the Chancellor has continued to ignore the issue. The stamp duty levy continues to have a detrimental effect on the housing market, especially on homes priced over £2m.
“At the very least, the Chancellor should have reduced second home stamp duty on buy to let properties and kept the rates as they are for those with multiple homes they use as residences. These landlords are providing much needed rental accommodation.”
David Westgate, chief executive of Andrews Property Group, commented: “The urgency with which new homes are needed across the UK cannot be underestimated. The fact that the Chancellor, by neglecting to address planning durations or introducing a moratorium on capital gains tax on land sales, means that an ideal opportunity to get the housebuilding sector moving has been missed.”
Steven Way, practice principal at Collier Stevens, said: “I would have liked to see the Chancellor address the inequality in VAT between new builds [0%] and renovations [rated at 20%] in the Budget, but to not even mention housing at all was totally bizarre. The VAT system as it stands, is a complete muddle, particularly from a building practitioners point of view.
“For new builds, it is clear cut, but when it comes to listed buildings and accessibility projects, there seems to be no hard and fast rules for professionals on those which are rated at 0% and those which are not.
“George Osborne made the peculiar decision to increase the amount of VAT relief on maintenance work to listed buildings in 2012, but not to any new work. We are still reeling from this. If we want to maintain the country’s built environment and heritage, the Chancellor should be looking at a new VAT regime.”
*Marc Da Silva is Estate Agent Today and Letting Agent Today Features Editor. You can follow him on Twitter @propertyjourno