George Osborne today delivered his 8th Budget Statement as Chancellor of the Exchequer.
Many consider the number 8 the luckiest of all numbers, and in Chinese culture it is favoured by business due to its association with prosperity, wealth and success.
However, I am not sure that even this high esteem could assuage the foreboding felt by the landlord community as the Chancellor prepared to unveil his latest round of pronouncements – or as we’ve come to view it his latest attack.
From the off, Mr Osborne claimed the government has a track record of supporting businesses with low taxes. Many would of course dispute that suggestion, but for the sake of balance, lets start with the positives – of which there are a few.
- Firstly, beyond the Government’s established commitment to reduce Corporations Tax Mr Osborne announced that the headline rate would fall to 17 per cent in 2020. This represents an 11 per cent drop since 2010 when the rate was a whopping 28 per cent.
- Secondly, the Chancellor announced major changes to business rates, namely that the threshold for small business rate relief will rise from £6,000 to £15,000 while higher rate relief will increase from £18,000 to £51,000.
There were also major announcements concerning personal taxation:
- Increase Income Tax Personal Allowance to £11,500 from April 2017.
- Increase Higher Rate threshold to £45,000 from April 2017.
- Abolition of Class 2 National Insurance contributions from April 2018.
- From 2018, landlords who are keeping tax records digitally and providing regular digital updates to HMRC will be able to adopt pay-as-you-go tax payments to better manage their tax flow.
For those investing in property, Mr Osborne’s 8th outing is likely to be less closely associated with prosperity than further heartache.
Expected rule changes concerning the SDLT levy imposed on purchases of additional properties were confirmed, surprisingly without any exemptions for larger portfolio landlords or corporations.
In fact it was confirmed that:
- There will be no exemption from the higher rates for large investors.
- Purchasers will have 36 months rather than 18 months to claim a refund of the higher rates if they buy a new main residence before disposing of their previous main residence.
- Purchasers will also have 36 months between selling a main residence and replacing it with another without having to pay the higher rates.
- A small share in a property which has been inherited within the 36 months prior to a transaction will not be considered as an additional property when applying the higher rates.
- The government will provide £60 million to enable community-led housing developments in rural and coastal communities, including through Community Land Trusts, where the impact of second homes is particularly acute.
- The South West will receive around £20 million of this funding.
- The Government will consider married couples who are separated and living in circumstances that are likely to become permanent, as divorced for the purposes of applying the higher rates.
The new rules will apply to completions from 1 April 2016, meaning a reduction in new investment is highly likely while investors weigh up their options.
Furthermore the Chancellor announced plans to increase Insurance Premium Tax (IPT) from 9.5 per cent to 10 per cent from October 2016.
Finally, and perhaps most disappointing for those investing in the PRS, the Chancellor announced a 8 per cent drop in CGT rates to 10 and 18 per cent respectively for those paying basic or higher rate income tax. Great news on face value, until you realize that in addition to the reduction Mr Osborne announced a new CGT levy of 8 per cent payable on gains realized by the sale of residential property. i.e. landlords and property investors will continue to pay exactly the same rates – regardless of the tax cut.
So in summary, some good points for business. Possibly very good for small agencies, but questionable at best for their clients.