With the General Election less than seven weeks away, the Chancellor had little choice but to deliver a benign Budget aimed at attracting any undecided voters.Nick Barnes, Head of Research
With the General Election less than seven weeks away, the Chancellor had little choice but to deliver a benign Budget aimed at attracting any undecided voters. Although being all things to all men (and women) is not possible, Osborne did manage to offer something in each of the key areas of health, education, housing and tax.
Here’s a summary of the announcement he made that directly and indirectly affect the residential property market:
Savings – The ‘Help to Buy ISA’
The government announced that it will introduce a ‘Help-to-Buy ISA’ to help first-time buyers save for a deposit for a property. This works by the government contributing an additional 25% of the amount placed into the ISA up to a maximum of £3,000.
Although this new saving scheme will be welcomed by first time buyers, the scheme is not quite as attractive as it first appears as there is a cap of £1,000 for the initial deposit and a maximum of £200 can be deposited into the ISA per month. This means that it would take a saver over four and a half years (56 months) to accumulate the £3,000 maximum Government contribution. Additionally, the money can only be used towards the purchase of a house up to the value of £450,000 within London and £250,000 outside London.
The Chancellor confirmed that anyone holding an annuity will now be allowed to sell it to a third party, subject to the agreement of the annuity provider. The proceeds of the sale of the annuity can then be drawn down over a number of years and tax paid at the marginal rate in the same way as those taking their pension after April 6th.
This is important because millions of pensioners have already purchased an annuity and would have been less able to take advantage of the freedoms that will be offered when the new pension system comes into effect on 6th April as, under the current system, they would have been taxed 55% on any lump sums they withdrew from their annuity.
To help fund this tax concession, the lifetime allowance for pension contributions that benefit from tax relief will be reduced from £1.25m to £1m from 6th April 2015.
Inheritance Tax (IHT)
Although not mentioned in the Budget, it was leaked in the news that the Government plans to create a new tax free allowance for main residences, to be implemented in the 2016/17 tax year. The proposals involve the creation of a new tax-free allowance of £175,000 per person or £350,000 per married couple on the main family residence.
As a result of the proposal it is possible that no inheritance tax would fall due on qualifying properties worth up to £1m – depending on the value of the rest of the estate. The £1m figure comes from adding together the existing £650,000 maximum IHT nil-rate allowance with the new maximum £350,000 main residence relief.
As the family home is the main source of equity for most families, this positive news will help the majority of the population pass on a better inheritance to their heirs and help some to get onto the housing ladder.
Capital Gains Tax (CGT)
Originally announced in last year’s budget, the Chancellor confirmed that from 6th April, non-resident owners will be required to pay CGT on the sale of UK residential property.
Non-resident individuals will be subject to the same rates of tax as UK residents (18% or 28%) while non-resident companies will also be liable to the UK corporate rate of 20%. Certain reliefs will apply.
Annual charge for non-domiciled residents
Last year’s Autumn Statement announced a significant increase in the annual charge for long term non-domiciled residents in the UK. Whilst a charge is a reasonable trade-off for being taxed only on income remitted to the UK, the level of the increase – now £90,000 for those who have been UK-resident for 17 of the last 20 years – may deter some non-doms from staying in the country and therefore have an impact on the wider economy.
The Chancellor announced that the Government was committing to spending £24bn on affordable housing up to 2020, with a planned 275,000 new affordable homes targeted over this period. In London, nine new ‘Housing Zones’ have been designated, which will to unlock the redevelopment of 1,897 hectares of brownfield land and deliver 28,000 new homes. Outside of London, there will be an additional 20 ‘Housing Zones’ created that could provide up to 45,000 new homes.
In addition to this, David Cameron announced a scheme in February that will see 200,000 new starter homes delivered by 2020 at a 20% discount for first time buyers under the age of 40. Although this is of course welcome news, even with this discount, homes in London and the South East are likely to remain well be beyond the financial means of many first time buyers.
Private rented sector (PRS)
The Chancellor did not announce any new support for developing the private rented sector (PRS). This is frustrating because 19.4% of UK households and 29.6% of London households are now living in privately rented accommodation and the shortage of available properties is becoming a major issue.
The Chancellor has bowed to sustained pressure from the business community and agreed to conduct a review of business rates which are crippling many high street retailers struggling with high rents and lower trading volumes. We hope that any concessions will be in place at the latest by Budget 2016.
Tax avoidance and evasion
The government committed itself to clamping down on tax evasion and aggressive avoidance schemes - not only by those who seek to benefit from it, but also advisors who enable it. Corporate tax avoidance is likely to come under special scrutiny.