The Chancellor Jeremy Hunt presented his Spring Budget to Parliament on Wednesday 6th March, laying out the latest forecasts for the economy.
He also announced various changes, which included putting money into the economy and balancing the books by increased taxation.
For landlords and property investors, there are three key areas to take note of:
- Economic forecasts – these can influence the property market and costs of letting
- Property tax changes – these can improve or harm landlords’ returns
- Personal taxation changes – these can improve or reduce your (and your tenants)
earnings from income and capital gains
Economic forecasts: positive or negative for the property market and landlords?
Although the UK still isn’t out of the woods yet economically, things are certainly looking up, with the announcement that inflation is set to fall to its long-term target of 2% over the next few months.
This is extremely positive news, as some forecasters had suggested it would take another year.
This is particularly good news for the property market because the lower inflation is – and is expected to stay - the more likely the Bank of England will be happy to reduce the base rate, which should lead to lenders lowering mortgage interest rates.
This helps landlords and investors in two ways.
Firstly, for those landlords with existing mortgages that need to remortgage this year or next, it could help reduce the monthly payment amounts. That will be very welcome news to those who have had to move to a much higher-rate product in the last couple of years and it also helps new landlords invest in the market.
Secondly, if mortgage rates fall to around 4%, this should help return the property market to its normal 1.2 million in annual sales transactions and trigger an upturn in property prices. This isn’t expected to be huge, but small increases every year of 2-4%, in line with inflation, means properties owned with cash are holding their real value and those with mortgages should be making an even better return.
Moving forward, the general economic forecasts suggest that we are returning to more ‘normal’ growth following the shocks of the pandemic and the war in Ukraine.
Property tax changes
Many of the Chancellor’s tax changes were pre-empted by news reports, but there was a ‘nice’ surprise for higher-rate tax payers.
He announced two tax relief cuts:
- Furnished holiday let relief
Currently, there are two benefits for landlords who rent out furnished holiday accommodation, both of which will be scrapped from 6th April 2025:
- Unlike with standard residential lets, the full cost of mortgage interest can be deducted from rental income
- If they qualify for Business Asset Disposal Relief, Capital Gains Tax is payable at just 10% when the property is sold.
Those that let through a limited company however, will not be affected by the change to mortgage interest relief.
- Multiple dwellings relief
As it stands, when investors buy more than one property at a time – whether that’s in the same transaction or linked transactions – they can claim stamp duty relief, which essentially averages out the price per dwelling.
For example, if you bought three flats in England, two at £300,000 and one at £150,000, that’s £750,000. Divided by three, that puts the average at £250,000, within the 0% threshold for standard rate Stamp Duty. (The higher rate for additional properties would still apply.)
Although this relief was originally introduced to encourage investment in the Private Rented Sector (PRS), Jeremy Hunt explained that the Government was now scrapping it because it was being regularly abused.
The relief will be removed for transactions that complete from 1st June this year, although it will still apply if contracts were exchanged on or before 6th March, regardless of when the transaction completes.
Reduction of higher-rate Capital Gains Tax (CGT)
The one piece of good news in terms of property tax was regarding higher-rate GCT being cut from 28% to 24% from 6th April. This was an unexpected announcement and a welcome surprise for property investors looking to sell now and into the future.
In terms of the benefit to property investors, this will help offset the reduction in personal CGT allowances, which more than halved from £12,300 to £6,000 last April and will halve again to £3,000 from the start of the 2024/25 tax year. For example:
Less personal allowance of £6,000, £44,000 x 28% = £12,320 CGT payable
If they were selling this coming October without the tax reduction:
Less personal allowance of £3,000, £47,000 x 28% = £13,160 CGT payable
With the new tax reduction:
Less personal allowance of £3,000, £47,000 x 24% = £11,280 CGT payable
Of course, there are many things that can affect your own personal tax liabilities so, if you haven’t done so already, it’s worth consulting a property tax professional to check the impact of any budget changes on your property or portfolio.
Personal taxation changes
Over the last few years, there has been a lot of criticism of the Conservative Government for taxing people more highly than they ever have been before.
Although the Government has disputed some of this criticism, given that this was likely to be the last budget before the General Election, reducing some tax prior to everyone going to the polls was clearly a concerted effort to garner support.
The key tax changes that should benefit some, if not all landlords, include:
- If you run a property business, the threshold for registering for VAT has been increased from £85,000 a year to £90,000.
- If you pay National Insurance as an employee, this is being reduced by 2p for every £1 earned (from 10% to 8%). If you’re self-employed (as landlords tend to be) it’s a slightly smaller fall in real terms, from 8% to 6%. Together with the reduction given in last autumn’s budget, this should mean a total reduction in tax of £900 for employed people, through to £650 for the self-employed.
- If you have children and earn over £50,000, you start to lose child benefit. This system will be overhauled in the future but, for now, the threshold has been raised to £60,000 from April 6th 2024, so you are unlikely to lose any child benefit if you earn up to that amount.
- The freeze on both fuel and alcohol duty will be extended until February 2025.
And, if you have some money to invest, a new, tax-free additional ISA allowance of £5,000 will be created to invest in UK businesses.
Was the Spring Budget good or bad news for landlords?
This very much depends on your personal circumstances and it’s worth talking to a property tax expert any time there’s a budget, to check what the implications are for your personal circumstances and property investments.
But, for instance, if you switched to renting property via furnished holiday lets because you were struggling to make money in the long-term rental sector, the news that these reliefs are being scrapped next year could mean you need to revise your plans in the next 12 months, but hopefully the forecast lower mortgage rates will help to support renting long term into the future.
However, if you were looking to sell one or more properties, the good news is that you’re likely to keep more of your money and, if you have children and have currently lost some of your child benefits, it may be that these will shortly be restored.
You can read the full list of tax policy measures in the Spring Budget on the GOV.UK website.
If the announcements in the budget have prompted you to consider selling or buying investment property, we have Buy to Let experts in the branch that can talk through your plans and help you decide on the best route forward.
And, of course, our sales and lettings teams are always happy to discuss the current market and give up-to-date appraisals on property values and rents. Find your local Reeds Rains branch here.
Are you achieving the best monthly yield on your property? Find out with a free, no-obligation, lettings valuation.
The Reeds Rains Content Marketing Team
