A Budget for Stability
Will Rachel Reeves’ second budget provide confidence in the markets (much needed to control the cost of borrowing) in the nation (much needed to encourage the growth) and in the world (much needed to encourage inbound investment).
The central London property market will pause for thought. Hikes in Stamp Duty Land Tax or a new tax on buyers of properties were not introduced (unless they hide in the thousands of extra pages the Treasury always publishes) but the so-called Mansion Tax has arrived. A dwelling worth between £2M & £5M will attract tax of £2,500 p.a. just for being a property worth that much; those £5M+ will attract £7,500 p.a.. Owners of such properties can probably afford this extra tax without too much suffering; therefore market adjustment may be modest.
Those who had/have dwellings in a corporate wrapper, not exempt from ATED, will recall that in 2013 Annual Tax on Enveloped Dwellings came into force applying only to dwellings worth £2M+; the rates were £15,000 for those: £140,000 for one worth £20M+. Today ATED applies to dwellings from £500K in value (tax level £3,800) with the current £2M to £5M tax charge being £26,050 annually and the top rate for £20M+ properties being £244,750.
Is today’s Mansion Tax announcement just intended to raise the estimated £400M p.a. for a nice long time or is this the thin end of a wedge with a new tax which will also be expanded and increased – time will tell.
A less strongly headlined issue to affect the UK property market is tax on income from property. Private landlords have suffered under various governments with many reforms making the economics of deciding to ‘get into property’ increasingly challenging – this budget announces differential rates on property income taxation compared to earned income and, guess what, property income is to be taxed MORE. Initially, this rate is ‘only’ 2% more than standard income tax rates. Some of this income, however, is not offset by expenditure so to be a tax on profit. Running a property business is very different from running other businesses, due to changes abolishing mortgage interest deductions from property income. One is often paying tax on gross income for property investments and now one is to pay that at higher rates than one does on earned income from employment.
Will this affect how many people want to buy property as an investment? Will that have downward pressure on prices as landlords choose to sell rather than rent? We don’t know yet but this time next year we may be able to get some data and to comment.
It is to be hoped that Rachel Reeves’ budget now finally a ‘known’ thing will help people and businesses decide to do things in the UK rather than to ‘wait and see’; it is also to be hoped that people decide to do things rather than to sit on their hands for longer as economies thrive on activity and we here in London want to enjoy a thriving economy with all the benefits that brings to our lives.
