The current system based on 1991 property values appears contrary to the Chancellor’s own guiding principle of fair taxation.Nick Barnes - Head of Research
Although the UK now has one of the fastest growing economies in the developed world, the Chancellor nonetheless has an embarrassingly large budget deficit and lower than anticipated tax revenue given the pace of economic growth. Moreover, with the General Election just around the corner, this all points towards a fairly neutral Budget with perhaps a few surprise sweeteners to sweep up any undecided voters. We list below some of the key measures we would like to see introduced.
The current system based on 1991 property values appears contrary to the Chancellor’s own guiding principle of “fair taxation.” We therefore hope that he will announce a timetable to reform the outdated Council Tax system, including a revaluation of properties and the setting of new thresholds. This will be a costly exercise but he could make use of the receipts from the recent sale of shares in Lloyds Bank and Eurostar which netted over £1.25bn. We would additionally like reiteration that he will not introduce a Mansion Tax.
1. The combination of increased lifespan and the growing uncertainty of pension income means that many pensioners will struggle to fund residential care as they age. We would like to see tax breaks introduced for residential care, i.e. where pension income is used to fund residential care, either grant a lower or zero tax rate.
2. Given the uncertainty of income in retirement we would also request a concession to allow pensioners to hold property within their pensions. If the properties were subsequently rented out, we would also ask for tax allowances. Together, these would help to boost the supply of rented stock by encouraging investment in the private rented sector.
3. We applaud the various pension reforms which will come into effect in the new tax year, including the proposed reduction in the tax currently liable on the sale of annuities. However, it is vital that any financial advice given to pensioners about how best to take advantage of the new rules is genuinely impartial and we hope the Chancellor will instruct the Financial Conduct Authority to ensure that this is the case.
Inheritance Tax (IHT)
We would like the IHT threshold to be raised to at least £500,000 by a specified date – ideally no later than the beginning of the next tax year. Given that for most households, the family home is the main source of equity this would greatly help the majority of the population to pass on a better inheritance to their heirs and helping some to get onto the housing ladder.
1. Rental market: the most recent English Housing Survey showed that private renting is gaining traction, whether by choice or not, with 19.4% of households nationally and 29.6% in London now living in privately rented accommodation. However, the shortage of available stock is becoming as much of an issue as it is in the sales market in many locations. We therefore urge more direct encouragement of PRS investment, specifically:
i. make public land available to investors at below market rates, who would then fund the development of new rented housing
ii. create a separate use-class for PRS with tax concessions to encourage institutional investors to enter the sector en masse and achieve the necessary critical mass to make a real difference to supply
2. Sales market: the NHF says that less than half the 245,000 homes required nationally each year are being built. Some progress has been made with various Government funding for house building and planning simplification, however more help is needed, specifically:
i. further simplification of planning to speed up the process and reduce the cost of major development applications
ii. more focus on brownfield development and surplus public land
iii. confirmation of a clampdown on landbanking – set a maximum period land can be held before applying for consent to develop
3. We applaud the Government’s recent initiatives to streamline and speed up the Section 106 procedure. However, a further simplification would be to combine the Community Infrastructure Levy with Section 106 requirements to avoid any duplication of payments.
4. The Government could also become a jv partner in new housing development. In return for supplying land at a discount and tax incentives to develop the Government could take a percentage of the investor / developer profit.
We would like to see further measures taken to clamp down on corporate tax avoidance which will relieve pressure elsewhere in the finances and free up further public investment in key areas such as housing. We would additionally like a more stable approach to property tax policy as uncertainty is one of the biggest barriers to investment. If full details of any tax changes could be announced well in advance of implementation and then fixed for a definite period this would enable investors to act with more confidence.
1. We are concerned that the raft of tighter regulations, national and international, imposed on the banking sector might combine to restrict mortgage lending going forward, especially with further imminent international regulations on their way. Greater prudence in lending is of course desirable, but if it chokes buyer demand then it will be counterproductive.
2. The Mortgage Guarantee element of Help to Buy is due to end in 2016. It has so far enabled a little over 88,000 households to buy their own home, 80% of them first time buyers. This represents a small (some 5.8% of total transactions over its lifespan and not the rampant inflation driver that some commentators suggest) but important leg-up for aspiring homeowners. Whether it is renewed or replaced with another scheme, it is important that momentum in the market is maintained going forward.
Regulatory control of estate agents
1. we wholeheartedly support the introduction of compulsory licensing for estate agents – to include sales, lettings and management.
2. the current Housing Minister has categorically refused to make Clients Money Protection insurance mandatory which leaves tenants and landlords at risk. We would ask that this is made a compulsory requirement for all agents.