The Budget - 22 June 2010
The property market was both a winner and a loser in yesterday’s Budget, with most estate agents breathing a sigh of relief that it could have been worse.
The existing Stamp Duty regime remains in place, with the Chancellor impervious to calls for its reform. However, the £250,000 Stamp Duty break for first-time buyers escaped unscathed and the tax clampdown on furnished rental holiday homes will not go ahead. The capping of housing benefit could affect the supply of private rental accommodation in this sector.
However, most focus was on the rise in Capital Gains Tax, from 18% to 28% for higher-rate taxpayers, and its effect on the buy-to-let market.
This was despite the fact that at 28% CGT is still considerably lower than the rates of three years ago, of up to 40%, before Labour introduced the flat 18% rate.
One unexpected complication will be who is caught by the rise.
Tony Bernstein, tax partner at financial group HW Fisher, warned: “On the surface, it appears that the 28% rate will only affect higher earners whereas in reality, people on lower incomes could also easily be caught by it. The 18% CGT rate for people on basic rate tax will increase to 28% if the gain, when added to their income, pushes them over the threshold into the higher rates of tax.”
The Chancellor had been subject to intense lobbying from landlord and property groups, including ARLA, who argued that buy-to-let landlords should be exempt from any CGT rises for fear it would damage the lettings market.
Yesterday, a disappointed Ian Potter, operations manager of ARLA, said: “The planned rise of CGT may not be as extreme as many had anticipated, but it still comes with little consideration for the needs of landlords. Because of this, the Chancellor risks driving those landlords paying the higher rate of tax from an already very fragile housing market, at a time when they should be actively encouraged to stay and, ideally, further invest.
“In particular, neglecting to include rollover relief is a big gamble, as many landlords will now be penalised by CGT – and hit by Stamp Duty – when they sell one rental property and purchase another. This may further disincentivise some landlords from remaining in the Private Rented Sector (PRS) and negatively impact the overall supply of rental property.
“The PRS represents an extremely important part of the housing market, providing much-needed flexible and affordable housing to the UK. With this rise in CGT, the Government is taking a huge risk in destabilising the future supply of homes to the UK.”
But Louise Somerset, tax director at RBC Wealth Management, said: “There was some talk before the Budget that landlords should not suffer from the increase in CGT rates, but this was always wishful thinking. There is no good reason why an investor in property should be taxed differently to an investor in quoted shares, and the Chancellor clearly recognised this.
“Of course, this is going to leave a lot of buy-to-let investors who were relying on making a profit on the sale of their properties with a big headache when it comes to paying off interest-only mortgages in the future.”
However, David Whittaker, managing director of Mortgages For Business, said the rise in CGT was a major blow: “By increasing CGT, the Government is taking money out of the economy,” he said.
“In the property market the liquidity pool is still relatively parched. A healthy property market tends to mean a healthy economy. But by taking more cash out of the pockets of these investors, the Government is threatening to stunt the growth we expected to see in 2011.
“The rise in CGT combined with the income tax that landlords already pay on rent means a double blow for these investors. They’ll be left asking what they did to deserve such punishment. Professional property investors will now have to work much more efficiently in order to maximise the amount of money they are able to take home from their portfolios.”
However, many estate and letting agents were delighted that the CGT hike was not as bad as it could have been – 40% or even 50% had been mooted – and were pleased the change was implemented so quickly.
The existing Stamp Duty regime remains in place, with the Chancellor impervious to calls for its reform. However, the £250,000 Stamp Duty break for first-time buyers escaped unscathed and the tax clampdown on furnished rental holiday homes will not go ahead. The capping of housing benefit could affect the supply of private rental accommodation in this sector.
However, most focus was on the rise in Capital Gains Tax, from 18% to 28% for higher-rate taxpayers, and its effect on the buy-to-let market.
This was despite the fact that at 28% CGT is still considerably lower than the rates of three years ago, of up to 40%, before Labour introduced the flat 18% rate.
One unexpected complication will be who is caught by the rise.
Tony Bernstein, tax partner at financial group HW Fisher, warned: “On the surface, it appears that the 28% rate will only affect higher earners whereas in reality, people on lower incomes could also easily be caught by it. The 18% CGT rate for people on basic rate tax will increase to 28% if the gain, when added to their income, pushes them over the threshold into the higher rates of tax.”
The Chancellor had been subject to intense lobbying from landlord and property groups, including ARLA, who argued that buy-to-let landlords should be exempt from any CGT rises for fear it would damage the lettings market.
Yesterday, a disappointed Ian Potter, operations manager of ARLA, said: “The planned rise of CGT may not be as extreme as many had anticipated, but it still comes with little consideration for the needs of landlords. Because of this, the Chancellor risks driving those landlords paying the higher rate of tax from an already very fragile housing market, at a time when they should be actively encouraged to stay and, ideally, further invest.
“In particular, neglecting to include rollover relief is a big gamble, as many landlords will now be penalised by CGT – and hit by Stamp Duty – when they sell one rental property and purchase another. This may further disincentivise some landlords from remaining in the Private Rented Sector (PRS) and negatively impact the overall supply of rental property.
“The PRS represents an extremely important part of the housing market, providing much-needed flexible and affordable housing to the UK. With this rise in CGT, the Government is taking a huge risk in destabilising the future supply of homes to the UK.”
But Louise Somerset, tax director at RBC Wealth Management, said: “There was some talk before the Budget that landlords should not suffer from the increase in CGT rates, but this was always wishful thinking. There is no good reason why an investor in property should be taxed differently to an investor in quoted shares, and the Chancellor clearly recognised this.
“Of course, this is going to leave a lot of buy-to-let investors who were relying on making a profit on the sale of their properties with a big headache when it comes to paying off interest-only mortgages in the future.”
However, David Whittaker, managing director of Mortgages For Business, said the rise in CGT was a major blow: “By increasing CGT, the Government is taking money out of the economy,” he said.
“In the property market the liquidity pool is still relatively parched. A healthy property market tends to mean a healthy economy. But by taking more cash out of the pockets of these investors, the Government is threatening to stunt the growth we expected to see in 2011.
“The rise in CGT combined with the income tax that landlords already pay on rent means a double blow for these investors. They’ll be left asking what they did to deserve such punishment. Professional property investors will now have to work much more efficiently in order to maximise the amount of money they are able to take home from their portfolios.”
However, many estate and letting agents were delighted that the CGT hike was not as bad as it could have been – 40% or even 50% had been mooted – and were pleased the change was implemented so quickly.
Source - Estate Agent Today