Well I must admit it wasn’t quite as ‘scary’ a budget this time around for anyone involved in the property market as the three we had last year. And, in general, as long as you are fit and healthy, have a job and some wealth, it’s doesn’t appear too bad this time around.
What I’ve tried to do below is highlight the key things that I have picked up - so far. There may be more over the next few weeks as the whole 150-page document is scrutinised; in the past we’ve had some real surprises come out after a few days. One last year for example was about preventing tenancy agreements from including a clause prohibiting tenants from subletting your property – albeit needing your permission (see RLA website for more information)
The rules and regulation changes on the additional 3% stamp duty are straightforward for investors; it pretty much applies to you. BUT for those that are part investing or part owning, or have more than one family, are separating or divorcing, it gets mighty complicated.
As such, I’ve done a separate article on this which basically helps to summarise key points and scenarios highlighted in the brand new 29-page guide the government has produced to explain it!
Do remember things are getting even more complicated. The SDLT applies to England, Wales and N.Ireland but not Scotland, as they have their own system! And they are also going to have different tax rates on income etc.
So, here we go:
Economic:
Growth forecast cut to 2% for 2016 from the 2.4% forecast last year.
Inflation to remain low at 0.7% for 2016.
None of this is a surprise, we all know the global economy is having a wobble, so a slowdown is inevitable. The good news is that, with low inflation, this ‘economic uncertainty’ is helping to keep the costs of borrowing down.
First-time buyers, homeowners and investors will all benefit from this. And even today and yesterday there were new rates announced by Saffron for first-time buyers and new BTL deals from Paragon.
As long as the economic uncertainty, in part fuelled by the Brexit debate, remains just a ‘wobble’, things will hopefully settle back down in the second half of the year and in areas where demand for housing remains higher than supply, the market should still move forward.
The only areas where we don’t quite know what will happen is where there are pockets of high levels of renting, for example to those on benefits. If demand here falls dramatically, then that might cause prices to fall locally, but then typically landlords don’t sell unless forced to in a falling market.
Personal taxation improvements
Whichever end of the earnings spectrum you are on, there is good news.
This year, the personal allowance rises from £10,600 to £11,000 and from next year it’ll rise again to £11,500. If there are two of you earning income from property that’s pretty good news as it means you can earn this much without paying any tax. So, effectively, a two-income household can earn up to £23,000 tax free.
On top of this, you can also individually earn up to £5,000 tax free dividends (from a company or dividends from shares you invest in).
Another new option from this budget allows you to rent a room or your driveway – or indeed make money from the likes of eBay – for up to £1,000 tax-free per year.
Rather bizarrely, this seems to mean the government says it’s OK for anyone to trade anything, sell anything, share tools or let any of your property, seemingly without worrying about the huge number of rules and regulations they are imposing on landlords, agents, retailers or service companies. I’d be interested to know more about how they plan to police this!
Summary of potential tax free earnings
So now from next year you can earn £11,500 + £1,000 + £5,000 = £17,500 tax-free per person per year.
New thresholds for income tax
If you are basic rate tax payer, the new threshold for next year for basic rate tax will be £33,500 (currently £32,000) and for those that are on the higher rate tax, this threshold will start at £45,000 from 2017 (currently £42,385).
Capital Gains Tax: good news for company investors, no news for property investors!
Well this was very exciting and then very sad.
On the one hand we were told Capital Gains Tax would fall from 28% to 20% for higher rate tax payers and then from 18% to 10% for basic rate tax payers.
BUT then you read on and find out that when you make gains from property, they add 8% back on. In other words, the CGT for the sale of property doesn’t change at all.
This supports my view from last year that the government is trying to shift investors away from property investment towards investing in business/finance etc.
Read - Buy to Let Tax Checklist
Support for savers under 40 years old: new "lifetime" ISA
Only in December 2015 did the government implement its Help to Buy ISA, allowing first-time buyers to save into an ISA and topping up savings of up to £12,000 by 25%, ie turn it into £15,000 savings per person.
In the latest budget, George Osborne has taken this idea a stage further and introduced something far more flexible (but only for those under 40 years old) and more generous.
It’s called the ‘Lifetime ISA’
How the Lifetime ISA works:-
You have to be over 18 and under 40 years old.
Any savings you put into it before your 50th birthday will secure a 25% bonus from the government.
You can save as little or as much as you like, no minimum/maximum but the government will only top up the first £4,000 you save a year.
On the current Help to Buy ISA the money you can save and get the 25% bonus on is £12,000 per person, under the new scheme you can save up to £20,000 from April 2017.
If you have money in the ISA, after your 60th birthday you can take out all the savings tax-free, even the government bonus money.
What’s a ‘Lifetime’ ISA for?
Two things it appears. Firstly you can save as much as you want and your money and the government bonus can be used to buy your first home up to the value of £450,000 (clearly this is a London figure!).
Alternatively, you can just save into it, get the bonus money and then when you are 60, withdraw it tax free.
Read:-
When can you start saving into the ISA?
Well they say accounts will be open by April 2017, but they didn’t get them done on time for the Help to Buy ISAs, so don’t hold your breath!
In the meantime you can still open a Help to Buy ISA and we understand you will be allowed to ‘roll’ this into a new Lifetime ISAs.
Is there anything going up? Yes, insurance premiums!
Although there will be a rise of 0.5% in insurance premium tax, this isn’t too bad and most expected it to be a bigger increase. To be fair, too, the money is supposed to be ring-fenced to improve flood defences and, having seen the awful pictures of people being flooded not once but two or more times, I for one don’t mind paying extra if it helps prevent this from happening to others in the future.
Read - Buy to Let Insurance Checklist
Random other budget bits and bobs:
Money Advice Service
Despite all the money spent on the Money Advice Service, this is apparently now going to be scrapped. No idea what will happen to those that need free advice in the future, so I’m hoping there will be something to replace it.
New commercial stamp duty rates apply from 12am Wednesday, March 2016:
0% rate on purchases up to £150,000
2% on next £100,000
5% top rate above £250,000
Corporation tax to fall from 20% to 17% by 2020
Great news for small business; the more we can keep, the more we can re-invest in our own businesses.
Specific area investment:
Crossrail 2 in London: see where this will impact
HS3 link between Manchester and Leeds
£700m for flood defences schemes: could raise/recover housing values in areas affected so badly eg the Calder Valley
Tolls on Severn River to be halved by 2018: may help more movement across the border
How to finance a buy to let
Here’s the detail:-
https://www.gov.uk/government/news/budget-2016-some-of-the-things-weve-announced
