Wednesday March 6th saw Chancellor Jeremy Hunt put forward his Budget. It is likely to be the Government’s final financial offering before the upcoming General Election. So what did it include that might be relevant to landlords and property investors.
Capital Gains Tax Reduced
In an effort to drive residential sale transactions and subsequent tax revenue, the Government will be decreasing the higher rate of property Capital Gains Tax (CGT) from 28% to 24% from April 6th 2024.
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This unexpected announcement will be a win for those seeking to remove poor performing investment properties from their portfolio. The main rates of capital gains tax are 10% (to the extent that the gain falls within the individual’s basic rate band for income tax purposes) and 20%. These rates are increased to 18% and 28% for gains on the disposal of residential property and carried interest. All other rates will remain unchanged.
A minimal number of residential property gains suffer capital gains tax as a result of Private Residence Relief. No plans exist for changes to be made to this relief. Therefore this initiative will primarily affect landlords and second homeowners. The Government’s intention is to reduce the disincentive for the property owners for whom it applies to, to offload their assets, in turn generating revenue for the exchequer whilst increasing the number of houses available to possible purchasers.
Furnished Holiday Letting Tax Regime Abolished
In a significant blow for property investors, Jeremy Hunt is abolishing the tax relief for holiday let landlords. Following the 2016 Section 24 tax relief changes for the private rental sector, the tax breaks offered on furnished holiday lets (FHL) were a significant draw to the sector.
There are strict rules that govern when a letting qualifies as a FHL. These can be difficult to meet but there are clear benefits when they are met. These include the fact that individual FHL owners can claim tax relief on mortgage interest at their marginal rates of up to 45%, rather than just 20% for other tenancies. In addition, FHL businesses qualify for capital allowances, profits count as relevant earnings for pension purposes, and disposals can also qualify for Business Asset Disposal Relief (i.e. a 10% capital gains tax rate).
The removal of these benefits will result in a substantial hit for those that qualify. However, the measure is not hugely unexpected following high-profile campaigns and complaints by locals living in holiday hotspots. They have highlighted the struggles faced to either buy or rent properties near the home areas. The specific FHL rules are being abolished from April 6th 2025, resulting in the letting of both FHLs and other properties being subject to the same tax regime.
Stamp Duty Land Tax (SDLT) for Multiple Dwellings
The Government has provided a long-anticipated outcome to the consultation on Stamp Duty Land Tax. It was conducted more than two years prior to the budget. The main consequence being that Multiple Dwellings Relief will be abolished from June 1st 2024. Chancellor Hunt stated that, contrary to its intention, there’s no evidence it supports investment in the private rented sector and that it’s “regularly being abused.” It is believed that deals exchanged on or before March 6th 2024 will continue to benefit from the relief as will any other transactions that are completed before 1st June 2024.
When a number of dwellings are bought at the same time Multiple Dwellings Relief results in SDLT being based on the average price per dwelling then multiplied by the total number of dwellings. This resulted in the buyer being able to take advantage of multiple lower SDLT bands. The relief was intended to support investment in the private rented sector. Yet it has generated multiple areas for dispute, many regarding whether or not an annex is a dwelling in its own right. Professionals dealing with the area expect it will resolve one area of complexity, but as it will increase SDLT liabilities for some transactions, the market will subsequently need to decide who will bear this cost.
The Government also announced that First-time Buyers’ Relief will be extended from March 6th 2024 to include the acquisition of leases through nominee and bare trust arrangements. Additionally from that date, the 15% flat rate will not apply to public bodies and updates will be made to the exemption for certain acquisitions by Registered Social Landlords (RSLs).
Many industry experts were anticipating that the SDLT consultation response would include changes to the approach taken to mixed-use properties. Yet to their surprise despite the high volume of legal wrangling in this area, there was no mention of the topic.
National Insurance Rate Cut
A 2p cut to National Insurance (NI) was the Budget Announcement. From April 6th 2024, NI for PAYE employees will be reduced from 10% to 8%, a £450 annual saving for someone on an average salary.
For self-employed persons, NI is reducing from 8% to 6% and is an average £350 saving per year. The Chancellor claims that, combined with the reductions he made in his 2023 Autumn Statement, this will be “an average tax cut of £900 a year” for 27 million employees and £650 for the self-employed.
Valued Added Tax (VAT) Threshold Uplift
After seven years of being frozen, the VAT registration threshold for small businesses and the self-employed, will rise from £85,000 to £90,000. The aim is to reduce the tax burden for small businesses.
Expectation in some industry quarters was that it would increase to six figures. The £5,000 rise will be considered too meek by a number of struggling firms. Although it can be argued that the UK continues to have one of the highest VAT thresholds for countries in the Organisation for Economic Co-operation and Development (OECD).
Also relating to VAT, after the digitisation of the DIY Housebuilders Scheme, the Government is introducing legislation to provide HMRC with additional powers to request further documentary evidence in support of a DIY housebuilders VAT claim.
Housing
A £188 million fund for housing schemes in Sheffield, Blackpool and Liverpool and a £242 million fund for 8,000 new homes in Canary Wharf were announced. However the Government failed to put forward any grounding breaking measures designed to alleviate the chronic housing crisis. The Chancellor did though acknowledge the need for more homes for “young people” whilst pointing to the fact that the administration is “on track to deliver 1 million new homes in this parliament.”
Regional Investment
The North-East of England is already a prime location for property investors. A North-East trailblazer devolution fund worth £100 million aims to grow jobs and infrastructure in the region. Further enhancing demand and opportunities for landlords.
Summary
The private rental sector on the whole is not going to be overjoyed with the budget. The removal of holiday let relief and multiple dwelling reliefs is a significant hit. Especially when the number measures that have negatively impacted property investors in recent years are considered.
The government doesn’t seem to be concerned about reducing the size of the private rental sector. The budget is further evidence of that. The benefits of providing a welcoming trading environment that fosters a buoyant industry that can offer more significant amounts of good quality, affordable housing for the vast number of people that require it seem lost on them.