“I can report to the British people that their hard work is paying off and the era of austerity [is] finally coming to an end,” said the Chancellor, Philip Hammond, in his Autumn Budget speech, safe in the knowledge that any promises could be irrelevant, in the event of a no-deal Brexit.
The budget rewarded the British people for their sacrifices during the period of austerity, but how are the budget changes likely to affect the property market and homeowners?
Taxpayers will have more money in their pockets
An increase in the national living wage will give 25 year old plus workers a minimum £8.21, an increase of 4.9%. An increase in the personal allowance to £12,500 and the higher rate threshold to £46,350 will leave taxpayers better off: higher rate taxpayers by £495 a year and basic rate taxpayers by an average of £130 a year.
Fuel duty will be frozen for the eighth successive year, bringing good news to those living in rural areas or on new housing estates, who are heavily reliant on travel by car.
Insurance Tax unaffected
Households will be relieved that there will be no increase in insurance premium tax, payable on home, motor, health and travel insurance.
Business rate changes on the high street
In support of the British high street, there will be a reduction in business rates by one third for many retail properties with a rateable value below £51,000 for two years from April 2019, subject to state aids limits.
Non-residential buildings and allowances
New non-residential structures and buildings will be eligible for a 2% capital allowance, where new contracts for the construction are entered into from 29th October 2018. Business that incur qualifying capital expenditure on structures or buildings used for activities that qualify can claim a 2% flat rate writing-down allowance over a 50 year period, calculated on the original construction expenditure.
Separate legislation will be published in relation to the reversed charge that will be effective from October 2019. The recipient of relevant construction services will be required to account for VAT on supply, as a reversed charge. The aim is to prevent missing trader fraud, where subcontractors abscond with VAT that has been collected in respect of work on building projects. the reverse charge will not count towards taxable turnover when an unregistered business considers whether it has exceeded the VAT registration threshold.
Private Finance Initiatives (PFIs) banned
In the wake of the Carillion collapse, the Chancellor announced the abolition of Private Finance Initiative funding, saying the ‘days of the public sector being a pushover, must end’. Under the PFI system, buildings and infrastructure projects are financed and managed and then leased back to the state, often with contracts lasting over 30 years. Investors include local government pension schemes and international infrastructure funds.
PFIs have been used to build hospitals, schools and roads, with the idea of transferring the risk to the private sector. However, PFI contracts have proved expensive and a bad deal for taxpayers, earning huge profits for private investors while giving taxpayers poor service. There is ‘compelling evidence’ that PFI does not deliver value or genuinely transfer risk, the Chancellor said. The National Audit Office estimates that, while PFI built projects were relatively cheaper to build, over their lifetime PFI funded schools actually cost 40% more than had the government had funded them.
PFI allowed the government to borrow money without putting it on the state balance sheet but resulted in far higher costs than conventional public financing. The existing infrastructure backlog will now have to be funded by government.
Backers of the half-built Royal Liverpool Hospital, left unfinished after the demise of Carillion, will lose money on the project, but taxpayers will be left to find the funding necessary to complete the build.
House building by councils encouraged
The Housing Revenue Account cap, that prevented councils from borrowing to fund housebuilding, has been dropped. The Office of Budget Responsibility estimates the move could lead to a rise in housing supply of 9,000 homes.
Shared ownership stamp duty abolished
In the last budget the chancellor announced the abolition of stamp duty for first time buyers on properties up to £300,000. To date, approximately 121,500 properties have been purchased through the scheme.
The shared ownership initiative helps first time buyers who struggle to afford their home by allowing them to buy a share of it. Some thought the scheme would lead to higher house prices, but so far that doesn’t appear to have happened.
Now, first time buyers buying shared ownership will pay less stamp duty, which will apply to homes valued up to £500,000 under the scheme. The relief will be retrospectively applied back to the last budget. A quirk of the system excluded some buyers, who could only use the tax break when stamp duty was paid on the full value of the market property. Buyers were able spread stamp duty payments over time to lessen impact.
First-time buyers will be able to use the help to buy equity loan initiative until it is scrapped in 2023 (two years after its current deadline). There has been some criticism that the move has effectively ‘held captive’ sellers of property valued at over £1 million, which were ‘seriously constrained’ at the top of the market.
The nil-rate band for residential property is increased from £125,000 to £150,000 from April 2019 and to £175,000 from April 2020. The withdrawal rate will be tapered by £1 for each £2 over the £2 million threshold for estates with a net value over £2 million.
Landfill Tax is material disposed of at landfill sites in England and Northern Ireland. The rates will be increased from April 2019, to further encourage recycling and composting and reduce the amount of material going to landfill.
New house building incentives
The chancellor announced a consultation on simplifying the rules that currently prevent developers from converting commercial property into housing.
There will be additional funding for the Housing Infrastructure Fund to support the building of 650,000 new homes. The Housing Infrastructure Fund pays for the council development of roads and utilities to support new housing estates, which the £500 million injection will increase to £5.5 billion. The HIF will be used to improve London’s Docklands Light Railway to support the building of 19,000 homes in the capital.
Local people will be encouraged to buy at affordable prices with the empowerment of 500 neighbourhoods to allocate or permit land for housing through neighbourhood planning and enable discounted sales to local people.
The government is considering forcing house builders to build a wider variety of homes, while local authorities could get the right to seize parcels of land to boost affordable housing.
In a report issued on budget day, and referred to in the chancellor’s speech, Sir Oliver Letwin MP concluded that housebuilders were not ‘engaged in systematic land-banking’ but he urged ministers to take active steps towards speedier development of land with planning permission. He asked for conditional funding on housebuilders meeting the Section 106 orders to dictate the number of affordable homes built and called for councils to be given clear statutory powers to take over large sites with compulsory purchase orders when developments need to be speeded up.
What the budget didn’t address was the current disinclination of homeowners to move house, whether moving up, along or down the property ladder. An average homeowner will now remain in a property for 19 years, a significant rise from the seven year average of ten years ago.
Stamp duty levy on foreign buyers and landlords
The chancellor increased penalties that deter landlords, who already pay an additional stamp duty surcharge of 3% and have seen cuts to mortgage interest tax relief when buying second homes or rental properties.
The expected additional stamp duty for foreign buyers has been scaled back to 1% of the property’s value.
Property income of non-UK resident companies
From April 2020, to prevent property owners from reducing tax bills by holding UK property in offshore companies, non-UK resident companies that run a UK property business or benefit from UK property income will be charged corporation tax rather than income tax.
Offshore receipts for intangible property
New legislation from April 2019 will be introduced to tax income from intangible property held in low tax jurisdictions to the extent that it is referable to UK sales. the measures will be targeted and robust against abuse with the introduction of rules, including de minimis UK sales threshold of £10 million. Among other changes will be a targeted anti-avoidance rule for arrangements entered into from 29th October 2018.
Lettings relief limited to properties where the owner is in shared occupancy with the tenant
So-called ‘accidental landlords’ will lose tax relief as they are swept into Capital Gains Tax from April 2020 when tax relief is withdrawn. There will be restrictions on who can claim lettings relief so that individuals will be liable to pay more in tax when selling properties.
Those letting property that was formerly their main residence are currently eligible for Lettings Relief, meaning ‘accidental landlords’ are given a tax break of up to £40,000 that, when they come to sell, covers the period when the property was let. The system has benefited separating or divorcing couples by up to £11,200 in tax, when they live away from the former family home but have retained ownership and let it out to tenants. However, after April 2020 the benefit will only apply if the owner continues to live in the property but is in shared occupancy with a tenant. The likely cost to accidental landlords is £150m extra a year by 2023-24.
Lettings Relief exemption has previously applied to the last 18 months of property ownership, regardless of whether the owners were living in the property at the time of sale. The exemption period will be reduced to nine months, meaning those owners getting divorced or separated could be liable for CGT if the former family home remains unsold after nine months.
Capital gains change for businesses
The Capital Gains burden on businesses is due to increase by more than £500 million over next five years, after the chancellor slashed the tax relief available on losses, but it is feared the move could distort the property market.
From 2020, large companies will only be able to claim relief on earlier capital losses against half their tax bill, a move that will cost businesses up to £140m annually. It is estimated that most companies will be unaffected, because full relief is still available on capital losses up to £5m.
However, businesses were able to offset losses on bad property deals to reduce the capital gains tax bill on more lucrative sales by transferring a loss one year to a gain the next. Under current law, the loss can be carried to shelter the gain but, under new rules, only half the gain can be sheltered meaning tax will be due on the other half. Slipping by just a few days could be very expensive, so the tax system will provide an incentive to delay the first sale or accelerate the next, even if it means selling for less.
Electric charge points
The first year allowance of 100% for expenditure incurred on electric charge points is to be extended by a further four years, expiring on 31st March 2023 for corporation tax and 5th April 2023 for income tax.
Enhanced allowances to end
The first-year allowance of 100% for some energy-saving or environmentally friendly assets, known as Enhanced Capital Allowances will end for energy and water technologies from April 2020.
Cost of credit
Ministers will work with debt charities to enable access to affordable credit to help households manage unexpected costs, as an alternative to high cost credit schemes such as that offered by the now defunct Wonga. A no interest loan scheme will be tested in 2019, mirroring an Australian scheme. There will be an extension of the ‘breathing space’ period to give people in serious debt before action taken.