Last Friday, the Government led by new Prime Minister Liz Truss outlined their growth plan that had been implemented to tackle energy costs, bring down inflation, back business and help households. Described as a mini-budget, the plans announced to the House of Commons by new Chancellor of the Exchequer Kwasi Kwarteng saw more wide-sweeping tax cuts announced than in any Budget in years. So, what do the changes mean for the property sector? We take a look.
The headline changes announced were as follows:
– Stamp Duty threshold raised to £250,000 or £425,000 for first-time buyers
– Corporation tax rise cancelled, keeping it at 19%
– Basic rate of income tax cut to 19% in April 2023 – one year earlier than planned with 31 million people getting on average £170 more per year
– New Investment Zones to bring business investment and release land for new homes in communities across the country.
The plan announced by the Chancellor sets an ambitious target to achieve a 2.5 per cent trend of growth.
Stamp Duty Changes
Setting out the first steps towards growth, Kwasi Kwarteng revealed a package of major cuts to Stamp Duty Land Tax (SDLT) in England and Northern Ireland, doubling the nil rate band from £125,000 to £250,000 for regular purchases (saving the average standard buyer in England £2,500 on their purchase). The Chancellor also increased the band from £300,000 to £425,000 for first-time buyers while also increasing the value of the property on which first-time buyers can claim relief, from £500,000 to £625,000.
No changes were announced for additional property SDLT surcharges.
CEO of GetAgent, Colby Short, commented: “Positive news for homebuyers, particularly first-time buyers who stand to make a considerable saving when purchasing their first property.
We can now expect the stamp duty spurred stampede of buyer activity seen during the pandemic to return, albeit at a more measured pace as today’s cut hasn’t come with an expiry date.”
Investment Hubs
Kwarteng also announced that the government is in discussions with 38 local and mayoral combined authority areas in England to set up Investment Zones in specific sites within their area. Each Investment Zone will offer generous, targeted and time-limited tax cuts for businesses, such as:
- Business rates – 100% relief from business rates on newly occupied business premises, and certain existing businesses where they expand in English Investment Zone tax sites.
- Enhanced Capital Allowance – 100% first-year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites.
- Enhanced Structures and Buildings Allowance – accelerated relief to allow businesses to reduce their taxable profits by 20% of the cost of qualifying
- 100 per cent relief from business rates, and liberalised planning rules to release more land for housing and commercial development.
- Zero stamp duty for land and buildings bought for use or development for commercial purposes, and for purchases of land or buildings for new residential development.
The government also plans to deliver Investment Zones in Scotland, Wales and Northern Ireland
Other Business Tax Relief
The corporation tax increase from 19 per cent to 25 per cent, scheduled to come into effect from April 2023, has been scrapped keeping it the lowest in the G20.
The government also reversed the 1.25 percentage point rise in National Insurance contributions, a change which it says will save 920,000 businesses almost £10,000 on average next year.
The Chancellor also announced more relief for businesses by making the Annual Investment Allowance £1 million permanently, rather than letting it return to £200,000 in March 2023. This gives 100 per cent tax relief to businesses on their plant and machinery investments up to the higher £1 million limit.
Further Tax Relief Measures
For the wider working population, the Chancellor announced a 1p cut to the basic rate of income tax one year earlier than planned. From April 2023, the basic rate of income tax will be cut to 19 per cent which, according to the Government, will mean 31 million people will be better off by an average of £170 per year.
Alongside cutting the basic rate of income tax, the Chancellor also abolished the UK’s top rate of tax of 45 per cent for people earning over £150,000 per annum. In its place will be a single higher rate of income tax of just 40 per cent. This move will take effect from April 2023 and is purposefully cheaper than surrounding nations, including Scotland, to attract the best and the brightest to the UK workforce, helping businesses innovate and grow.
The Markets React
Shortly after the mini-Budget announcement, the British pound crashed against the dollar as investors realised the positive growth targeted by all of these measures would not be guaranteed. Experts also predicted that the Bank of England would have to raise interest rates significantly to counter the short-term inflationary effects of the government’s growth measures.
Giles Coghlan, Chief Market Analyst of city brokerage firm HYCM, explained: “The mini-budget comes at a time when the government is trying to balance support for consumers and businesses with measures that might trigger further inflation, whilst also trying to reinvigorate a stagflationary economy.
“For investors, inflation poses the biggest threat to their portfolios, which the Prime Minister’s new emergency energy bills package should somewhat ease in the short-term. However, such a large fiscal package could contribute to elevated prices in the medium to long term that could inflict further damage to an economy and currency that are already on their knees.”
Despite the uncertainties, it seems for the property industry at least things are looking brighter with Rightmove reporting a 10 per cent increase in traffic within an hour of the Chancellor’s announcement. However, it remains to be seen if these measures will manage to pull the UK out of recession and bring inflation back under control.
