Last week saw George Osborne announce the first fully Conservative budget since November 1996. For the first time in 18 years the country would find out what the Conservatives really have in mind when they proposed balancing the books and creating a low tax, low welfare economy. Naturally, the property sector featured significantly in the budget, but, if you’re in the industry, or just buying or selling what do George Osborne’s changes mean for you? Wimbledon estate agent, Robert Holmes tells us more…
The Conservative election win steadied the property market, as those who wished to buy or sell at the upper end, felt reassured that there would be no dreaded mansion tax. With this budget, there certainly weren’t the shocks of December 2014, when the chancellor announced his changes to stamp duty; but he definitely still had some cards to play. For starters, he has taken care of that pesky inheritance tax trap which, if you live in London or the southeast, you are sure to fall into. It would seem that our government is taking the view that just because house prices are ridiculously high in these areas, it shouldn’t mean that you should be penalised by having to pay substantially more. For many baby boomers and their dependents, the announcement that by 2020 all assets under a million pounds will be taken out of the tax altogether was certainly welcomed.
It wasn’t such good news for those in the buy to let industry. At present many landlords enjoy the benefits of between 40% – 45% tax relief on their mortgage interest repayments. However, starting from as early as April next year, many landlords will gradually see the tax relief they receive on their mortgages slashed, culminating in a full reduction of 20% by 2020. This has left many experts in the industry reeling and speculating that it will result in higher rents as landlords feel the pinch and need to pass on these extra expenses to their tenants. There is even some suggestion that some will choose to get out of the business altogether and sell up, leading to fewer rental properties on the market.
What’s more it’s not just in this area that the so called amateur landlord will be made to suffer. Under previous rules so called wear and tear in a property could be considered a tax right off of around 10%. This is no longer the case, now only actual damage to a property can be considered as “costs”. Put these two tax changes together and it could well spell the wheels coming off the buy to let train. For those in the social housing sector there was some good news. Rents will be reduced by 1% annually for the next five years. However those who live in London and the south east may find things tougher if they earn more than £40,000 a year as they will have to begin paying full market rent.
So, this budget will result in many changes in the housing market. In a budget that favoured homeowners, or aspirational homeowners, it was good news all-round; but, for those in the business of buy to let, George Osborne’s budget dealt them some quite severe blows. It is quite probable that many who were thinking of becoming landlords will seriously reconsider as the new tax rules will see profits heavily reduced and in this could mean that it’s just no longer worth it.