Around the UK, property developers, investors and other stakeholders waited with bated breath for the 2021 Spring Budget, which was expected to be delivered in early March.
Many anticipated a few big announcements that would impact the property market, including the UK Government’s plans for the stamp duty holiday, capital gains tax and financial support proposals.
As the country continued to deal with the COVID-19 pandemic, many expected the mini-budget announcement to touch on tax matters, given the financial impact of the crisis on numerous business and governance aspects.
Stamp Duty Holiday Extension
The stamp duty holiday was initially announced in July 2020 to boost activity in the national property market, which experienced a dip after the first pandemic lockdown. The idea behind the holiday was to incentivise would-be home buyers to move forward with their plans, given the stamp duty threshold was being increased from £125,000 to £500,000 until the 31st March 2021.
The tax holiday has seen buyers save up to £15,000 on home purchases, and according to estimates, the property market experienced record levels of transactions thanks to renewed interest. However, while the interest has meant good business for property companies and investors, it has also put much pressure on surveyors, lenders and conveyancers, with many buyers and sellers facing significant delays in getting deals done. As the deadline was slated for the end of March, many were fearful deals could fall through.
After much campaigning from the property sector, the Chancellor of the Exchequer Rishi Sunak announced an extension of the stamp duty tax holiday to the 30th June 2021. Until then, qualifying property purchases will attract 0 percent stamp duty on the first £500,000. After June, the threshold will reduce to £250,000 for three months (until the 30th September 2021) before returning to the normal £125,000 level from October 2021.
Additionally, the Chancellor announced plans for the government to underwrite 95 percent loan-to-value mortgages for properties worth up to £600,000, providing help to first-time homebuyers who struggle to save for a deposit. The move comes at a time when accessing low-deposit mortgages has been hard for many first-time buyers looking to get on to the property ladder.
For property developers such as Zuneth Sattar, the government’s intervention could mean sustained interest in new properties, in which Mr Sattar and many others have invested to sustain the housing demand. However, low-deposit mortgages tend to have high-interest rates, so first-time buyers could still struggle to access housing where property values are high.
Many believe that the chancellor’s tax holiday has been ‘too successful’, especially given the increased interest from potential buyers that property agents and companies have witnessed since July 2020. An extension of the measure will only offer hope to more buyers to proceed with their purchases.
However, to ensure efficiency, sellers can get organised by putting together all the required certificates and guarantees in advance. At the same time, buyers can move to secure their finances early and get time estimates from a conveyancing solicitor.
Potential Tax Changes
In the summer of 2020, the chancellor requested an assessment of capital gains tax from the Office of Tax Simplification (OTS), with the body calling for an increase of the same in line with income tax rates. Should the chancellor go ahead and implement an increase, property investors and landlords would have to adjust the way they do businesses.
For some, it would mean holding on to their property investments for longer, while others will be more interested in annual income than capital growth. How a potential increase is introduced would matter, as some investors may opt to sell early if the tax reform takes a phased approach.