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The latest Budget
– the first from the new Chancellor Rishi Sunak since his rapid ascent to the second highest office of state – was, as expected, heavily influenced by the need to mitigate the current coronavirus health crisis.
He pledged a £30 billion package of measures to tackle coronavirus, including suspending business rates for many firms in England, extending sick pay and boosting NHS funding. This follows the Bank of England’s decision just before the Budget to announce an emergency cut in interest rates – lowering the base rate from 0.75% to 0.25% - in order to protect the economy as cases of Covid-19 rise.
Sunak, the 39-year-old former junior minister at the Ministry of Housing, Communities and Local Government, who was only promoted to his current position last month when Sajid Javid dramatically resigned from government, also announced £5 billion plans for gigabit-capable broadband in some of the hardest to reach parts of the UK, a freeze on beer, cider and wine duties, and a freeze on fuel duty for another year.
But what did he have in his red leather box when it comes to housing? As always before a Budget, there was pressure on the Chancellor to reform or even scrap stamp duty, as well as providing extra money for housebuilding.
What, though, did his first Budget – the first since October 2018 thanks to Brexit delays and last year’s snap general election – have in store for the property industry?
Extra stamp duty for overseas buyers and… not a lot else
As expected, given the current focus on coronavirus and protecting the economy against it, housing took something of a backseat and there were none of the big announcements on stamp duty, housing schemes or tax changes that have lit up previous Budgets.
For some, including landlords who have been besieged by various tax measures and changes in recent years, that will be a relief. But others, who were hoping for more radical changes to stamp duty, might be disappointed that the only change the government announced was the widely anticipated stamp duty surcharge on non-UK tax residents.
This policy was in the Conservative Party manifesto 2019 and it had been widely expected that Sunak would announce the implementation of this additional surcharge.
The only slight surprise was the fact it was a 2% levy rather than a 3% one, as previously stated by the manifesto and other Conservative Party literature. This slightly lower levy might have been an attempt to appease those operating in the highest echelons of the property market, who had been up in arms about the Tory plans.
The idea of an extra tax on non-UK resident buyers was originally mooted by Theresa May in October 2018, with the surcharge potentially as high as 3%. However, a fierce backlash from the prime property industry led to it being dropped to a 1% surcharge by the time the government carried out a consultation on its possible design in February last year
The consultation ran until May 2019, but very little was heard about the plans until the Tories – now under the leadership of Boris Johnson - unveiled proposals to introduce a 3% stamp duty surcharge
on non-UK tax residents in the run-up to last year’s general election.
As expected, Sunak has now confirmed the government’s intention to implement the 2% stamp duty surcharge on the purchase of UK investment properties by non-resident overseas buyers, which is due on top of the 3% surcharge that second home and buy-to-let owners already have to pay. The government says this change will come into effect in April 2021.
There were no other changes to stamp duty for the mainstream housing market, despite the Prime Minister himself making many proclamations in the past about radical changes to this tax. Sunak said that the surcharge would raise £650 million which would be used by the government to help around 6,000 rough sleepers into permanent accommodation.
Other measures were revealed in the Budget which could have a direct, or indirect, impact on the housing market. All firms with fewer than 250 employees – which includes a large number of estate agencies and property management companies, not to mention PropTech startups and other businesses related to the property industry - will have sick pay refunded by government in full, for up to 14 days, for any staff member off work because of coronavirus.
Additionally, business rates for agencies and other retail operators with rateable value under £51,000 will be abolished for this year, while some other businesses will get a £3,000 cash grant. The government also announced that there will be a review launched of the long-term future of business rates at an additional Autumn Budget later this year.
Furthermore, it was revealed that a planning white paper will be announced (Thursday 12 March) and that 4G coverage will be extended to 95% of the country in the next five years. There will also be an extension of the Affordable Homes Programme with a new multi-year settlement of £12 billion.
Most strikingly, aside from the large sum of money dedicated to controlling the coronavirus outbreak, was the government’s planned increase in infrastructure spending, equating to some £175 billion over the course of the current parliament as it seeks to act out its promise to level up the country.
How did the industry react?
Neil Cobbold, the chief sales officer at PropTech firm PayProp, said the additional 2% stamp duty surcharge for overseas investors ‘would certainly have an impact on the demand for properties’ in England's major cities.
“We will have to wait and see whether disincentivising overseas buyers causes a shortage of rental homes in the long-term. Changes of this type – and reduced competition from overseas - would encourage more domestic landlords to invest in further properties and provide more homes for the growing tenant population.”
Elsewhere, Mark Hayward, chief executive of NAEA Propertymark, said the stamp duty surcharge would make little difference to most people: “Overseas buyers tend to purchase properties in prime central London which are completely unaffordable to most homebuyers anyway. Therefore, this move will not help those that need it most. Ultimately, by energising surcharges, it is likely that purchasers will factor this additional cost into any offers they make on a property so prices may be pushed down in areas where overseas buyers are purchasing.”
High-profile London agency Winkworth urged the Treasury to stop tinkering with stamp duty and introduce tax incentives for landlords to encourage them to sell to tenants.
“Stamp duty is a real negative for the property market as it discourages people from moving, particularly downsizers,” Winkworth chief executive Dominic Agace said. “This has a knock-on effect on the flow of employment, which is bad news for businesses trying to recruit, especially in London and other major cities.”
He says a better route would be ‘to encourage property investors to sell to tenants’ by offering capital gains incentives. “Currently, an investor who sells a rental property is liable to pay capital gains tax at 28% on any profits they make, which is a big disincentive to selling up. If tax relief were introduced, the tenant could also benefit, by receiving some of the proceeds as a mortgage deposit.”
The UK’s two biggest landlord trade bodies – the Residential Landlords Association and the National Landlords Association, who are set to merge soon – argued tenants will continue to face a rental supply crisis as the Budget had failed to boost the supply of privately rented homes. In a joint statement, the organisations said: “The government is undermining its own efforts to boost homeownership through its attacks on the private rented sector. By choking off supply and making renting more expensive it is tenants who are hardest hit.”
The statement added: “Ministers need to wake up to the reality of the damage their tax measures are doing to the private rented sector and support landlords to provide the new homes for private rent we desperately need.”
The Budget received support, too, with Ian Larkin, CEO of online mortgage broker Trussle, saying: “Today's Budget and the earlier rate cut from the Bank of England indicate a robust economic response to the threat of coronavirus. We hope that this coordinated, swift action will help to reassure homeowners and maintain mortgage lending. We’re also supportive of the Chancellor’s extension of the Affordable Homes Programme to £12.2 billion and expect it will inject welcome activity in the UK housebuilding sector.”
And Andy Foote, director at property development and investment firm SevenCapital, said the 2% surcharge for non-resident property investors was a welcome relief to overseas buyers.
“Where these investors are concerned, whether they be overseas nationals or British expats wishing to keep their wealth within the UK, this move is likely to be met with relief and extended opportunity,” he said. “The allowance of a further 13 months until the levy is implemented will be welcomed by those wanting to get into the market ahead of time, as will the slightly reduced levy amount for those who were expecting the higher figure.”
The coronavirus understandably took centre stage at this Budget, but the housing proposals the government did announce have provoked a mixed reaction from the industry. The new planning white paper is a welcome step, but as with all these government announcements the proof of the pudding will be in the eating.