A Budget for Stability
Time will tell if Rachel Reeves’ second budget, delivered today, will provide confidence in the markets (much needed to avoid the cost of borrowing to rise further) and in the nation (much needed to encourage the growth upon which our future prosperity as a nation depends) and in the world (much needed to encourage inbound investment).
The central London property market will pause for thought. Hikes in Stamp Duty Land Tax or the introduction of a tax on buyers of properties were not introduced (unless they hide in the thousands of pages of further information the Treasury always publishes) but the so called Mansion Tax has been announced. A dwelling worth between £2M and £5M will see an annual tax of £2,500 due just for being a property worth that much and one worth over £5M will attract a tax rate of £7,500.
Those who own properties of that value can probably mostly afford this extra tax without digging too hard into the cash lost in the sofa and the market adjustment may not be huge as a result but those who had (or still have) dwellings wrapped in a corporate vehicle and not exempt from ATED will recall that when Annual Tax on Enveloped Dwellings came into force in 2013 it applied only to properties worth more than £2M and the rates were £15,000 for those up to £140,000 for one worth over £20M whereas today the tax applies to properties from £500,000 in value (tax level £3,800) with the current £2M to £5M tax charge being £26,050 annually and the top rate for over £20M properties being £244,750.
Is today’s Mansion Tax announcement just intended to raise the estimated £400M p.a. for a nice long time or is this the thin end of a wedge with a new tax which like ATED will be expanded and increased – time will tell.
A less strongly headlined issue which may affect the UK property market is tax on income from property. Private landlords have suffered under various governments with many tax and other reforms making the economics of deciding to ‘get into property’ more and more challenging – this budget announces differential rates on property income taxation compared to earned income and guess what, property income is to be taxed MORE. Initially, this rate is ‘only’ 2% more than standard income tax rates. Some of this income, however, is not offset by expenditure so to be a tax on profit. Running a property business is very different from running other businesses, due to changes abolishing mortgage interest deductions from property income. Not only, therefore, is one paying tax on gross income for many property investments but now one is paying that at higher rates than one does on earned income from employment, for example.
Will this affect how many people want to buy property as an investment? Will that have downward pressure on prices as landlords choose to sell rather than rent? We don’t know yet but this time next year we may be able to get some data and to comment.
It is to be hoped that Rachel Reeves’ budget now finally a ‘known’ thing will help people and businesses decide to do things in the UK rather than to ‘wait and see’; it is also to be hoped that people decide to do things rather than to sit on their hands for longer as economies thrive on activity and we here in London want to enjoy a thriving economy with all the benefits that brings to our lives.
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