It’s budget number 8 for George Osborne and it was billed to be pay, pension and petrol centric. You can read the Budget report in full here but what was the impact for property?
A Pre-Budget Property Industry Wish List
The Estates Gazette produced an industry pre-budget wish list focusing on a need for more detail on the Stamp Duty Land Tax (SDLT) surcharge for buy-to-let landlords (specifically whether institutional investors will be exempt and at what level); what kind of developments will be bound by starter home requirements; the long-awaited results of the government’s business rates review and business energy tax reform; a response to Lord Adonis’s Crossrail 2 report; announcement of infrastructure investment, to boost the northern powerhouse agenda; clarity on devolution rumours of the launch of a West Midlands engine investment fund; clarity over the Brexit debate; and the details for the development of up to 5,000 new homes in ‘garden suburbs’. So what did we get?
A Quick Analysis
The rabbit out of the hat was the lifetime ISA, but we will wait and see how this conflicts with policy for pension savings. For property, the cuddly rabbit was distinctly missing. Despite pleas from the industry, the 3% SDLT surcharge, on buy-to-let property and second homes, will definitely go ahead and any mention of the previously announced new garden city at Ebsfleet was omitted from the Budget. Whilst the government confirmed its backing for Crossrail 2 and HS3, the big story for property lay with the new property taxes. The industry took yet another hit with a 1% increase on top rate SDLT for commercial property transactions. In addition, Capital Gains Tax reductions won’t apply to property and landlords. This is a doubly whammy for buy-to let investors who are also facing a cut in income tax relief on interest payments. 2016 is a budget where The Chancellor announced measures to tax UK property development profits.
Extract from the Red Book:
2.183 Stamp Duty Land Tax: additional properties – As announced at Spending Review and Autumn Statement 2015, the government will introduce higher rates of SDLT on purchases of additional residential properties from 1 April 2016. The higher rates will be 3 percentage points above the current SDLT rates. Following consultation, there will be no exemption from the higher rates for significant 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. (Finance Bill 2016) 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. (44)
2.184 Stamp Duty Land Tax: application to certain authorised property funds – As announced at Spending Review and Autumn Statement 2015, the government will introduce a seeding relief for Property Authorised Investment Funds (PAIFs) and Co-ownership Authorised Contractual Schemes (CoACSs) and make changes to the SDLT treatment of CoACSs investing in property so that SDLT does not arise on the transactions in units. These changes will take effect from the date Finance Bill 2016 receives Royal Assent. (Finance Bill 2016)
2.185 Annual Tax on Enveloped Dwellings (ATED) and 15% rate of Stamp Duty Land Tax: scope of reliefs – As announced at Spending Review and Autumn Statement 2015, the government will extend the reliefs available from ATED and the 15% higher rate of SDLT to equity release schemes (home reversion plans), property development activities and properties occupied by employees from 1 April 2016. (Finance Bill 2016)
2.186 Stamp Duty Land Tax (SDLT): reform of non-residential rates – The government will change the calculation of SDLT on freehold and leasehold premium non-residential transactions so the rates apply to the portion of the purchase price within each band. The government will also amend the rates and thresholds so that the portion of the transaction value up to £150,000 is charged at a rate of 0%, the portion between £150,001 and £250,000 is charged at a rate of 2%, and the portion over £250,000 is charged at a rate of 5%. SDLT on non-residential leasehold rent transactions, where the rates already apply to the portion of the purchase price within each band, will be reformed to include a new 2% rate for leasehold transactions with a Net Present Value over £5 million. These changes will take effect on and after 17 March 2016. (Finance Bill 2016) (27)
- Fundamental reforms of the business tax system. There is a shift from RPI to CPI for uprating business rates from 2020. Threshold raised for lower & higher business rate relief. ‘6,000 small businesses will pay no business rates at all’ as the new threshold for small business rate relief is raised from £6,000 to £15,000.
- Corporation tax will be cut to 17% by April 2020, down from 20%.
- Top rate of commercial SDLT is going up by 1% from midnight tonight (16th March 2016). However if you are buying at the lower end (under £1.05m) the rates will be lower: starting at zero up to £150,000, 2% on the next £100,000 and 5% for costs over £250,000.
- Northern Powerhouse to get infrastructure investment for a new 4-lane M62; a new tunnel road from Manchester to Sheffield; an upgrade to the A66 and A69 in the North Pennines; and £60 million announced to develop HS3 between Leeds and Manchester.
- Devolution: Osborne announces transfer of new powers over criminal justice system to Greater Manchester; English counties to get elected mayor. (East Anglia, West of England and Greater Lincolnshire); 100% of local government resources will come from their own area by the end of the Parliament. However, Geater London Authority (GLA) to get full retention of business rates three years early (2017).
- Major boost for oil and gas industries in Scotland. Climate change levy will rise from 2019; £730m to back renewable technologies; Petroleum Revenue tax scrapped completely; the supplementary charge on oil and gas will be cut in half to 10%.
- £115m for those who are homeless or sleeping rough.
- The toll charges on the Severn Bridge will be lowered to help the Welsh economy.
- Insurance premium taxes are to increase by 0.5%, lower than expected but follows an earlier rise last year. The extra revenue, estimated at £700million, will be used to improve flood defences.
- Extra funding to keep schools open longer. All primary and secondary schools will become an academy by 2020. New funding formula with 90% of schools on it by the end of this parliament. Further improvements to quality of education to be announced tomorrow.
- A new sugar levy on the soft drinks industry.
- Fuel, beer and cider duty frozen but taxes will increase for cigarettes and hand-rolled tabacco rises by a further 3%.
- Boost for savers. Tax-free ISAs will be increased from £15,000 to £20,000 plus a new ‘lifetime ISA’ for under 40’s. For every £4 saved the government will give you £1, up to the value of £4,000 per year.
- Capital gains tax cuts with the headline rate cut from 28% to 20% with basic rate falling from 18% to 10%. However, There will be an additional 8% surcharge to be paid on residential property and carried interest (the share of profits or gains that is paid to asset managers) – so no decrease then!
- The Tax-free personal allowance rises to £11,500 and no one earning less than £40,0000 will pay the 40p rate of tax.
- A ‘tax break for the digital age’. Two new tax-free allowances worth £1,000 for online trading and property income. Offers help for those earning income from property possible renting rooms through Airbnb or possibly even buying or selling online (maybe with crowd funding). We shall have to wait and see what the experts say!