Constrained by forecasts from the Office of Budget Responsibility (OBR) for lower than expected growth and higher than expected government borrowing, George Osborne’s budget was largely a matter of give and take, with much of the giving in the longer term and the taking in the short term, especially in the property sector. It is not good news for property investors, who learned that there will be no exemption to the 3% Stamp Duty (SDLT) surcharge for owners of 15 properties or more, and that a cut in Capital Gains Tax (CGT) will not apply to property investments. SDLT reform for commercial property will benefit purchasers below £1.05m and hit purchasers above this level, overall yielding c£500m for the treasury.

THE ECONOMY

The OBR has cut growth forecasts for the next five years, with UK GDP growth now expected to be 2.0% this year (vs the previous forecast of 2.4%), 2.2% in 2017 and 2.1% in 2018. These reductions are due to weaker growth prospects for the global economy and considerably lower than expected UK productivity growth.

RESIDENTIAL PROPERTY

3% Stamp Duty surcharge for additional properties 

The 3% stamp duty surcharge on additional properties (second homes or buy to let investments) announced in the Autumn Statement will take effect from 1 April 2016. This will apply to all purchases completed on or after 1st April 2016, with the exception of properties where contracts were exchanged before 25 November 2015.

No exemption for owners of more than 15 properties

There will be no exemption for owners of multiple properties, contrary to the suggestion in the Autumn Statement that investors with 15 or more buy to let properties may be exempt from the extra 3% SDLT.

Grace period if replacing main residence

Purchasers will be allowed a 36 month ‘grace period’ period during which they can own two properties, if they buy a new main residence and sell their previous main residence. They will still pay the additional 3% SDLT, but will be able to reclaim this if the previous residence is sold within 36 months. This will also apply to owners of several properties if they are replacing their main residence.

For owners who sold their main residence prior to 25 November 2015, the 36 month grace period will start from this date.

The new SDLT rates are as follows;

Property Price Current Stamp Duty (SDLT) SDLT for additional properties
up to £40,000 zero
up to £125,000 zero 3%
£125,001 to £250,000 2% 5%
£250,001 – £925,000 5% 8%
£925,001 – £1.5m 10% 13%
remainder over £1.5m 12% 15%

Cuts in Capital Gains Tax (but NOT for investment properties)

Cut in CGT from 28% to 20% for higher rate taxpayers (and from 18% to 10% for basic rate taxpayers) but this will NOT apply to the sale of second homes and investment properties, which will still be charged at 28% or 18%. CGT does not apply to the sale of your main home.

COMMERCIAL PROPERTY

Cut in business rates relief 

There is a cut in business rate relief to zero for properties with a rateable value of up to £12,000 (currently £6,000) with tapered relief for properties worth up to £15,000.

Changes in Stamp Duty (SDLT) for commercial property

SDLT for commercial property is to change from a slab to slice system, as for residential property. The net effect is expected to be a gain for the exchequer of over £500m per year. Purchasers of commercial property up to £1.05m will pay less in stamp duty, so over 90% of buyers are expected to pay less tax, and an estimated 9% will pay more. There will also be a new 2% rate for leases with a net present value (NPV) over £5m.

The new SDLT rates (from 17 March 2016) for freehold commercial property are;

Property Price Stamp Duty (SDLT)
Up to £150,000 Zero
£150,001 to £250,000 2%
Remainder over £250,000 5%


Land
HOUSE BUILDING / HOME OWNERSHIP

Local authorities are to work with the government to find land for 160,000 new homes. This is in addition to the public sector land release promised for 160,000 new homes in the Autumn Statement. This will include land around rail stations.

Planning

New measures were announced to speed up the planning system; ‘reducing the number of stages developers have to go through to get permission’.

Garden Cities

The garden cities initiative will be expanded. There will be a ‘new wave of garden towns and cities’ with the potential to deliver more than 100,000 new homes, including the establishment of garden villages and market towns of 1,500 to 10,000 homes.

Starter Homes

The Help to Buy: Shared Ownership Prospectus is to be launched in April. This will invite local authorities to access the £1.2bn funding for the development of brownfield land for the delivery of Starter Homes.

 Community Led Housing

There will be £60m funding for community-led housing developments, including Community Land Trusts, in rural and coastal communities. Often adversely affected by the purchase of second homes. This will be funded from the 3% SDLT surcharge on additional properties.

Social Housing / Home Ownership

Further investigation was announced aimed at extending home ownership to social housing tenants (no details). It is estimated that only 10% of social tenants can afford to buy under current schemes.

There will be a strategic review of supported accommodation (social housing) sector. The government had already delayed until 1 April 2017 the imposition of local housing allowance caps to new social housing tenants. It is estimated that the introduction of caps could cost housing associations £5.2m to £14.3m pa.

Homelessness

£100m is to be invested in accommodation for the homeless ready to move on from hostels and refuges. A further £10m is to be spent on initiatives aimed at the reduction of rough sleeping, especially in London.

 

Nicola Almond, Investment & Development Analyst, BUDGET 2016 – Impact on the Property Sector 

Stamp Duty thresholds have changed, under new rules which came into force on the 3rd December 2014. What do Stamp Duty changes mean for you? We take a look and explain how they will effect your property purchase.

Stamp duty land tax (SDLT) is the tax you pay when you buy a property. The old rules used what HMRC called a ‘slab structure’. The amount of tax you paid depended on the price band your property fell in.

If you were buying up to £125,000 no stamp duty was paid but after that there were five bands, as follows.

  • Between £125,001 and £250,000 – a 1% charge
  • Between £250,001 and £500,000 – 3%
  • Between £500,001 and £1m – 4%
  • Between £1m and £2m – 5%
  • above £2m – 7%
  • Homes of more than £500,000 bought by companies rather than individuals had a rate of 15%.

The key point was that you paid the percentage charge on the whole amount of the price, not on an incremental basis. So, if you bought a house for £200,000 you would pay SDLT of £2,000 (1% of £200,000); the tax would not be applied only to the excess over £125,000.

The effect of this was that there were large hikes in the amount of SDLT you paid when you crossed from once band to another. For example, you would pay £2,490 on a property costing £249,000 but £7,530 on one costing £251,000.

Not only was this unfair, it caused house prices to bunch artificially below the thresholds.

The new stamp duty changes work on a similar basis to income tax with SDLT being paid progressively as you go through the thresholds, providing good news for many buyers. The new bands are as follows:

  • Up to £125,000 – still 0%
  • £125,001 and £250,000 a rate of 2%
  • £250,001 and £925,000 a rate of 5%
  • £925,001 and £1.5m a rate of 10%
  • Above £1.5m a rate of 12%.

On a £200,000 purchase you would pay no tax to pay on the first £125,000, then 2% on the remaining £75,000. The total bill would be £1,500, compared to £2,000 before the changes.

However, it is not good news for everyone. You will only be better off if you are buying for less than £937,000. A purchase of more than that sum will mean you pay more under the new rules.

If you are buying London property for £2.1m, for example, you will pay £165,750 under the new regime compared to £147,000 previously.

If you are looking to buy in the coming months, please visit one of our offices and discuss your requirements with a member of staff who will be happy to help and discuss how these changes will effect your sale. You can find the contact details of all our offices here: http://www.currell.com/contact