2010 Budget Implications for UK property

The UK government today announced their 2010 emergency budget to the house of commons and it makes significant changes to the taxation concerning income and capital gains from property.

The Headlines:
- Income tax threshold raised by £1000 to £7475
- UK Economy growth forecasts reduced to 1.2 percent this year and 2.3% in 2011
- Capital Gains tax raised from 18% to 28% for higher rate income tax payers from midnight tonight
- Capital Gains Tax remains at 18% for low and middle-income savers
- Council Tax frozen for 12 months from April 2011
- Corporation tax to be cut progressively over the next few years
- VAT to rise from 17.5% to 20% from January2011

The rise in Capital Gains Tax (CGT) was expected by most to rise to the same level as income tax (40% for higher rate) – so this announcement will not come as a shock but maybe some small relief to those expecting a greater hike. Lower income bracket earners wil be relieved that the tax payable on the sale of property (other than a principle dwelling) will remain at 18%

Private landlords will also, no doubt, be calculating the impact on the rental sector that the changes to income tax and housing allowance may produce.

The effect on inflation, trade and unemployment will also have a bearing on inflation, affordability and access to finance – all of which will have a bearing on house prices over the next two years.

Have your say, leave your comments below.

Sources: BBC, Reuters, Sky News

 
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Are you wondering, what is the capital gains tax on my Property?

If you’re wondering how the newly formed coalition government will affect the Capital Gains Tax payable on selling a house in the UK then you may be interested to hear that Citywire reported this morning that an increase in CGT is expected to be central to the tax reforms proposed by the new government.

picture courtesy of freedigitalphotos.net

 
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Abolish stamp duty say Estate Agents and Landlords

Estate agent and landlords’ organisations have formed a pressure group called the 1808 coalition (in reference to the year the duty was introduced) to campaign for the total abolition of stamp duty on houses in the UK.

The coalition has been formed between the Association for Residential Letting Agents and the National Association of Estate Agents – both of whom have a clear interest in trying to get back to the ‘good old days’ when their businesses were booming due to the high volumes of house sales and dizzy capital growth.

Last year the chancellor suspended stamp duty for properties under £175,000 (by temporarily raising the qualification rate from £125,000) in an attempt to lower the entry barriers for first time buyers and encourage movement back into the housing market. This temporary suspension ends on 31 December 2009 but there have been calls to extend this further.

Peter Bolton-King, chief executive of NAEA, said that stamp duty prevents access to the housing market to first time buyers and that it unfairly penalises buy-to-let investors.

Some commentators have questioned the interests of the pressure group and suggested it is more self-interested lobbying than concern for UK residents or the wider economy.

Resources: Stamp Duty rates
FT.com article Housing group call to end stamp duty
Citywite commentary on Morning Line

Image courtesy of freedigitalphotos.net

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James Caan breathes fire into the property market with £1bn interest free loan fund

Online property portal Look4aproperty.co.uk have announced a £1 billion loan package to stimulate the UK housing market by offering interest free loans to homebuyers to cover the costs of stamp duty, legal fees and other unavoidable costs associated with homebuying.

The scheme, backed by Hitachi Capital (UK) PLC, will be offered out through selected estate agents (presumably those with accounts to advertise their properties on look4aproperty.co.uk).

James Caan became the Chairman of look4aproperty last year when he took a 25% stake in the business through the investment arm of his business Hamilton Bradshaw. In a statement at the time Caan referred to ‘plans to announce a series of new products to kick-start the struggling UK housing market in the New Year’.

Caan and his business partner Aaron Turner, who built the business, believe that stamp duty is ‘one expense too far for many people’ as it cannot be bundled into the home loan. Their theory is that by making the moving process more affordable it will encourage more buyers into the market to stimulate activity and growth.

In a statement Caan said:

“This scheme gets rid of those financial obstacles which are holding up the housing market. This means that thousands of people who have been putting off moving or buying their first home can now climb up the property ladder without further delays.”

Stamp duty explained
You pay ‘Stamp Duty Land Tax’ (SDLT) when you buy property.

New thresholds introduced from 3 September 2008 mean that if you buy property and the purchase price is £175,000 or less you don’t pay any SDLT at all.

If it’s more than £175,000, you pay between one and four per cent of the whole purchase price, based apon a sliding scale. The £175,000 threshold (up from £125,000) will remain in place up to and including 31 December 2009.

Read more about stamp duty on the Direct Gov website.

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PM launches £1 billion housing package

From the no.10 website:

The Prime Minster has launched a major Government initiative aimed at making the housing market fairer for all.

The £1 billion Homeowners Support Package includes a one-year holiday on stamp duty for all properties costing £175,000 or less, a move that will see around half of all house moves exempt from duty over the next twelve months. The Government will also extend its shared equity assistance to help more first-time buyers onto the property ladder.

Speaking on a visit to meet first-time buyers in west London, the PM said that homeowners needed to know that the Government would do all it can “to keep the housing market moving”.

He said:

“Help with stamp duty, help for first-time buyers, help to build more social housing, help to take unsold properties off the housing market and help for people who get into difficulties.”

Other measures announced today include the acceleration of £400 million programme to deliver 5,500 new social rented homes and reform of the Support for Mortgage Interest scheme that helps protect the most vulnerable on very low or no incomes.

Launching the package through the Department for Communities and Local Government, Communities Secretary Hazel Blears said:

“This Government is committed to practical action to help those most affected by the current state of the housing market. We are working to make sure everyone struggling to pay the mortgage gets support and advice. We are giving a leg-up to first-time buyers keen to own a place of their own.

The Nationwide Building Society’s chief economist Fionnuala Earley was quoted in the Citywire blog as being reluctant to say if the stamp duty holiday would kick-start the housing market.

‘It may have some impact loosening chains at the bottom of the market but it is difficult to know what impact it will have because of consumer confidence and the worsening economy,’ she said.

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Treasury attempt to clarify position on rumoured Stamp Duty break

The BBC has reported that the Treasury has moved to clarify their stance on Stamp Duty in response to media and political speculation that some kind of tax break is being considered to help the struggling property market. Earlier in the week in a letter to the chancellor, shadow Treasury spokesman Philip Hammond claimed that Labour’s dithering over the issue had undermined the housing market at a historically low point, by “creating a significant incentive for people to delay house purchases”.

And he demanded that Darling end the uncertainty over the matter, pledging cross-party support if Labour were to adopt Conservative plans to lift the Stamp Duty threshold for first-time buyers to £250,000.

The Treasury’s response was quoted by the BBC:

“Recent news stories suggesting the government has put forward a proposal on stamp duty are simply wrong. These stories are based on speculation.

“As has been said on many previous occasions, the government has made clear that there are a number of options we will need to consider to help businesses and people get through what is undoubtedly a difficult time.”

TBPL View:
The government have been forced to issue a statement as their previous refusal to rule out a Stamp Duty tax break has lead to intense media and industry speculation which in turn has encouraged buyers to hold off from completing transactions in case they miss out on a possible tax break.

The statement is a fairly ineffective measure to reassure buyers that nothing immediate is happening in order to keep the market moving, and doesn’t rule out help in the medium term.

First Time Buyers: If you’re in no rush to buy it may be wise to wait and see what happens in the next few months (to house prices as well as Stamp Duty) – but if you’ve found a good buy and have budgeted cautiously then there is a case to move ahead regardless. There will always be some uncertainty in the market, whether it be house prices, interest rates or government intervention.

Sources:
BBC News website
Runnymede and Weybridge Conservatives Website

Notes:
Stamp duty is paid by the buyer at the time of completion, the rate varies according to the value of the property.

Current rates are:
£125,000 to £250,000 pay 1%
£250,000 to £500,000 pay 3%
Over £500,000 pay 4%

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