Against a fractious backdrop of Tory infighting and expectations that the Chancellor, who has already attracted a litany of monikers from the ironic ‘box office Phil’ to the mud slinging ‘Eeyore’, was in line for the boot, one thing was certain—this year’s Autumn budget was make-or-break. But it wasn’t just make-or-break for him. After the utterly disastrous Tory conference (ahem, ahem, cough-cough-cough), and the mess Hammond made of the Spring Budget with its momentous NI U-turn, it was pretty much make-or-break for the entire party.
But ‘spreadsheet Phil’, as he more affectionately known by peers, managed to pull off the sort of U-turn the Tories like. Yes, despite restrictive dimensions, from the red suitcase came a whopping £25billion handout. This audacious generosity at a time of tedious austerity leaves little doubt that, whenever things are looking shaky in a relationship, there’s nothing the giving of ostentatious gifts can’t make better.
But how will his rather surprising announcements on November 22 affect the very thing that we, at Shepherd Cox, are most concerned with—the property market?
Well first up was the big headline: no stamp duty for first time buyers on properties up to £300,000. Significantly, for those living in London and the Southeast, the stamp duty exemption works for the first £300,000 on purchases up to £500,000. So, good news for those people eager to clamber onto the property ladder; but what of their closest competitors—landlords? Was it was good news for them too? Well only in the sense that scant news is good news. Little was said about them, and they breathed a collective sigh of relief.
They endured no more tax bashing, and were even offered a small olive branch, with planned changes to compel the settlement of capital gains bills within 30 days being pushed back to April 2020. The Chancellor also hinted at extra help for those prepared to offer tenants longer term lets. In relation to this, he said:
“We will launch a consultation on barriers to longer tenancies in the private rented sector, and how we might encourage landlords to offer them to those tenants who want the extra security.”
While this hardly warrants putting up the bunting, it’s certainly better than more taxes. But it leaves one guessing, how might the government encourage landlords? Will they provide tax relief on the new taxes already imposed, or would that look too much like a sly U-turn? Not that it matters too much, because any concession now, unless it was a whacking great U-turn, is likely to be seen by landlords as having their full wallets returned to them with a bit of loose change in, months after being robbed.
Another small change in the property arena is Hammond’s decision to hand councils the power to levy a 100 percent council tax on empty homes. So-called ‘buy to leave’ landlords hoping to profit from capital gains alone are off the Chancellor’s Christmas list. And if this shot across the bows doesn’t much worry wealthy residential property investors right now, we think it should. Because the unravelling narrative from the government is becoming clearer by the month—the residential property market should no longer be thought of as a playing ground for speculators.
If further evidence of this was needed, another change that will adversely affect the balance sheets of limited property companies is the abolition of indexation allowance*. Although this affects all businesses, in the property sector specifically it has allowed landlords to benefit from a calculation that reduces capital gains tax payments the longer property has been held for. Without doubt it’s a simplification of tax law, but one that unsurprisingly falls firmly in the Treasury’s favour. If further clarification on this were needed, the government projects that from a modest investment of £380,000 to implement the changes, it will over the next six years claw back a staggering £1.7billion in new revenue.
Hammond said: ‘There is a case now for removing the anomaly of the indexation allowance for capital gains, bringing the corporate system into line with personal capital gains tax. I will therefore freeze this allowance so that companies receive relief for inflation up to January 2018, but not thereafter.”
Even with the corporate tax gain reduction coming into play in 2020, with this particular many businesses will be worse off. Where limited property companies are concerned, it will be the ones who, when they come to sell long held portfolios, will be most adversely affected.
So overall it was hardly the budget that shook the world, or even the country. But if one underlying message is to be gleaned, it’s that the government is desperate to win the approval of the younger demographic, that it believes property is the way to its heart, and that it won’t let the interests of larger business interests stand in the way.
With punitive tax measures compressing buy-to-let yields, a decent return on buy-to-let isn’t the certainty it once was. But what about an 8% assured return with a 115% buyback at year five. That’s an everyday reality when you invest with Shepherd Cox. To find out more, get in touch today.
*For more details on indexation allowance see the relevant page on the Government website.