Autumn Statement Property Overview
Chancellor George Osborne has announced a considerable number of changes to the UK buy-to-let market in his Autumn Statement. In his recent speech, George Osborne swiftly changed tactics by scrapping his plan to cut tax credits in order to help those who are currently struggling financially in the UK. (1)
The main tax announcements for Autumn Statement 2015
The main announcements you should be aware of as a property investor, UK landlord or tenant are as follows:
The threshold of income at which you can claim tax credit will remain at £6,420 per year from April 2016. Anyone earning below this amount will receive the maximum help available. The income threshold for child-tax credit will remain at £16,105 in 2016 to 2017. The Government will lower upper-income levels per parent from £150,000 to £100,000 and increase the minimum income level per parent from 8 hours at the national living wage to 16 hours. (2)
2.Stamp Duty Land Tax
Stamp duty rates are set to increase, meaning the percentage in Stamp Duty Tax to be paid on a property in the UK will increase from April 2016. The exclusions are caravans, mobile home/houseboats, or corporates and funds making significant investments in residential property, given the role of this investment in supporting the government’s housing agenda.
If you own a large property portfolio of 15 residential units or more, the policy may be amended in your favour. (2)
3.Making Tax Digital
£1.3 billion is to be invested into the digital development of HM Revenue and Customs. This investment aims to digitally revolutionise HMRC, including the creation of free apps and software to allow businesses, self-employed people and landlords keep track of their tax affairs easily online. (2)
How Will This Affect UK Landlords?
It is important to understand that the changes to tax impacting the UK buy-to-let market will not affect existing investors. (3)
The main financial change which will come into play in April 2016 will be the increase in Stamp Duty Tax on residential property. George Osborne believes that this new surcharge would help to raise an extra £1 billion for the Treasury by 2021. (4)
The Increase in Stamp Duty Tax (5)
|Property Price||Current Rate||April 2016|
|Up to £125,000||0%||3%|
|£125,000 - £250,000||2%||5%|
|£925,000 - £1.5million||10%||13%|
This essentially means that you will be required to pay more tax on any property bought after April 2016 and a substantially greater amount for properties over the £1 million mark.
Despite this being a worrying factor for many UK landlords and first-time buyers, this increase could tempt further, overseas investors to move into the North of the UK, seeking cheaper property investment opportunities with similar rental yields as the capital.
The money raised by the increase in stamp duty will be invested into the development of new homes for local people in areas where locals have been priced out of the market, such as London and Cornwall. (6)
HMRC Digital Development
The time in which you are allowed to pay stamp duty tax on a property has been reduced significantly, from 30 days to 14. This will be introduced from 2019, which the Treasury have claimed will help to raise £110 million in that year. The digital development of HMRC will help to make the process a lot more efficient for both sides. Moreover, the deadline for paying capital gains tax on buy-to-let investments will be reduced from 22 months to 30 days from 2019/2020. (6)
Further Changes in The Autumn Statement
There are further changes which will be introduced over the next couple of years which will affect the UK property market and low-income tenants.
A cap on the amount of Housing Benefit which can be claimed will be introduced, in order to limit the financial help UK tenants can claim to cover their rent. This will only apply to tenancies signed after 1 April 2016, with Housing Benefit entitlement changing from 1 April 2018 onwards. In addition, there will be a limit on the Housing Benefit and Pension Credit payments to 4 weeks for claimants who are outside the UK, from April 2016. This is to make sure that the system is not subsidising the rent, for those who spend more than 4 weeks overseas. (5)Homelessness
The government has addressed the issue of homelessness in the UK by increasing funding available. There will be more money available for innovative ways of combating the issue of homelessness. This is why property investment groups who are helping to provide affordable and high-quality property will be relieved of the increase Stamp Duty Tax. (5)
Despite the initial financial blow to new property investors, the Autumn Statement means people looking to expand their existing property portfolio further or invest in their first buy-to-let should invest before the rate increase is enforced. Those already making a healthy return on their investment will benefit from a potential decline in the amount of new investors entering the market. In the future property investment groups who provide sustainable, affordable housing will be looked on more favourably by the Government.