With UK inflation sitting at a 40-year high, the cost of borrowing rising dramatically and the nation’s economy on the precipice of recession, it was little surprise that last week’s long-awaited Autumn Statement, designed to restore economic stability, tackle inflation and reduce the national debt by £55 billion, was hard-hitting.
But what do the announcements from last week’s budget mean for the UK property sector? We take a look at the key takeaways of the Autumn Statement.
Income tax
– The threshold at which the highest earners start paying the top (45p) rate of tax is to be reduced from £150,000 to £125,140. The new Chancellor of the Exchequer Jeremy Hunt anticipates this measure will see those earning £150,000 pay a little over £1,200 more in tax per year.
– The income tax personal allowance threshold will be frozen until April 2028. This freeze effectively means millions of people will end up paying more in tax as they move into the next tax band as their wages rise.
Capital Gains Tax
The Chancellor’s changes to Capital Gains Tax are significant for property professionals halving the Capital Gains Tax annual exemption from £12,300 to £6,000 in the 2023-24 tax year and then halving again to £3,000 in 2024-25.
Tim Walford Fitzgerald, partner at accountancy firm HW Fisher, commented: “This is bad news for landlords, second homeowners and those looking to sell their property as Capital Gains tax is applied at a much higher rate for residential property sales.
“Expect to see a decline in the number of disposals – people will hold off from selling their assets during unfavourable conditions. Or, as there is a delayed introduction for the new threshold, look out for a quick spike in sales as individuals and families try to beat the new implementation date.”
Stamp Duty
The Chancellor had already cancelled most measures introduced in his predecessor’s mini-budget however he announced that the Stamp Duty discount will continue to run until March 31, 2025 in his Autumn Statement.
This means the threshold at which Stamp Duty is charged on residential purchases will remain at the current figure of £250,000 while for first-time buyers it will stay at £425,000 for purchases up to £625,000.
Hunt explained his decision: “The OBR expects housing activity to slow over the next two years, so the stamp duty cuts announced in the mini-budget will remain in place but only until 31st March 2025. After that, I will sunset the measure, creating an incentive to support the housing market.”
Ben Beadle, Chief Executive of the National Residential Landlords Association, spoke out against the move: “The Government has yet again failed to recognise the potential for housing to drive growth and deliver for the economy. The Chancellor should have focused on boosting supply by ending the Stamp Duty Levy on the purchase of new rental homes.”
Managing Director of Barrows and Forrester, James Forrester, commented: “We can expect the nation’s tenants to feel the brunt, as yet another government initiative designed to deter landlords, this time in the form of a capital gains tax raid, reduces the level of stock available and drives up rental values. The only silver lining is that many of today’s announcements don’t kick in for a while and this lot may not still be in government by then.”
Rightmove’s property expert Tim Bannister added: “The clock now ticking on potential stamp duty savings will bring a bit more urgency for people trying to get on the ladder or trade up in the next few years. As it’s still in place for a couple of years we don’t foresee a significant number of people bringing their plans forward to 2023, especially due to current affordability challenges, but we may see a jump in new sellers towards the end of next year and into 2024 to ensure they can move in time.”
Business rates
Along with shops, offices, pubs, factories and guest houses, holiday rental homes are subject to business rates, which are assessed every five years to ensure their rateable value reflects the current property size.
To help businesses adjust to the latest revaluation of their properties, which takes effect from April 2023, the Chancellor announced a £1.6 billion Transitional Relief scheme to cap bill increases for those who will see higher bills. This limits bill increases for the smallest properties to 5%. Furthermore, small businesses that lose eligibility for either Small Business or Rural Rate Relief as a result of the new property revaluations will see their bill increases capped at £50 a month.
Ratepayers in England can view the future rateable value for their property and get an estimate of what their business rates bill may be from 1 April 2023 through the Find a Business Rates Valuation Service.
Bills
The Chancellor also announced further changes to the energy price cap which is currently set at £2,500 per year for the average household. In April 2023, the Energy Price Guarantee will rise to £3,000 per year (for an average household) for 12 months giving some stability to households while also keeping inflation in check. With prices forecast to remain elevated throughout next year, this equates to an average of £500 support for households in 2023-24.
Wages
Property professionals with employees may be affected by the new National Living Wage increase, which takes effect from April 2023, the hourly rate is rising 9.7 per cent to £10.42 per hour which represents an annual pay rise worth over £1600 to a full-time worker.
The new Chancellor of the Exchequer Jeremy Hunt confirmed in his speech that the Office for Budget Responsibility (OBR), which provides independent economic forecasts and independent analysis of the public finances to the government, has judged that the UK has already entered recession and that his measures would ensure the recession be as short and shallow as possible.
Iain McKenzie, CEO of The Guild of Property Professionals, summed up the new measures: “Despite the increases in tax and budget cuts announced today, the stamp duty cut will remain in place until 2025, which shows that the government sees the property market as driving growth and stability.
There may be some realignment in pricing to adjust for the rising cost of living, but the market will recover,” he added.
How will the new measures affect you?
